Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
10-K/A
(Amendment No. 1)
(Mark One)
☑
Form 10-K
(Mark One)
þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
Or
☐
For the fiscal year ended December 31, 2023
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to
For the transition period from
to
Commission file
number: 0-10546
 
Commission file number: 0-10546
LOGO
DISTRIBUTION SOLUTIONS GROUP, INC.
(Exact Namename of Registrantregistrant as Specifiedspecified in Charter)
its charter)
Delaware36-2229304
Delaware
36-2229304
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
8770 W. Bryn Mawr Avenue,301 Commerce Street, Suite 900, Chicago, Illinois 606311700, Fort Worth, Texas 76102
(Address of principal executive offices)
Registrant’s telephone number, including area code:
(888) 611-9888
(773) 304-5050
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Title of Each Class
Trading
Symbol
Name of Each Exchange
on Which Registered
Common Stock, $1.00 par value
DSGR
LAWS
The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ☐    o No ☑þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes ☐o      No ☑þ
Indicate by check mark whether the registrant (l) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☑þ      No ☐o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§ (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑þ      No ☐o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,filer,” “smaller reporting company” and “emerging"emerging growth company”
company" in Rule 12b-2
of the Exchange Act. (Check one)
Large accelerated filero
☐Accelerated filer☑þ
Non-accelerated filer
☐ (Do not check if a smaller reporting company)oSmaller reporting company☑þ
Emerging growth company☐o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act  ☐o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’smanagement's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑þ
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o
Indicate by check mark whether the registrant is a shell company (as defined by
Rule 12b-2
of the Exchange Act).  Yes  ☐o  No  ☑þ
The aggregate market value of the registrant’s voting stock held by
non-affiliates
on June 30, 2021,2023, based upon the closing price of the registrant’sregistrant's Common Stock on that date, was approximately $237,752,000.$254,225,483.
As of January 31, 2022, 9,115,584February 29, 2024, 46,783,333 shares of Common Stockcommon stock were outstanding.
Auditor Name: BDO USA, LLPAuditor Location: Chicago, ILAuditor ID: 243
DOCUMENTS INCORPORATED BY REFERENCE
None.
TablePart III of Contents
EXPLANATORY NOTE
This Amendment No. 1 on Form
10-K/A
(this “Form
10-K/A”)
amends Lawson Products, Inc.’s Annual Report on Form
10-K
for the fiscal year ended December 31, 2021 (the “Original Form
10-K”),
filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 24, 2022. The Original Form
10-K
omitted certain information required by Items 10 through 14 of Part III of Form
10-K
in reliance on General Instruction G(3) to Form
10-K,
which permits information required by the above-referenced Items to be incorporated incorporates by reference into a Form
10-K
fromsome portions of the registrant’s definitive proxy statement if such definitive proxy statement isrelated to its 2024 Annual Stockholders’ Meeting, to be filed no later than 120 days afterwith the end of the fiscal year covered by the Form
10-K.
Because we will not file our definitive proxy statement for our 2022 annual meeting of stockholdersSecurities and Exchange Commission within 120 days after the end of our last fiscal year, we are filing this Form
10-K/A
to (i) amend Items 10 through 14 of Part IIIclose of the Original Form
10-K
to include the information required by such Items and not included in the Original Form
10-K
and (ii) delete the reference on the cover of the Original Form
10-K
to the incorporationfiscal year. Except as expressly incorporated by reference, of portions of ourthe registrant's definitive proxy statement into Part IIIshall not be deemed to be part of the Original Form
10-K.
this report.
Pursuant to Rule
12b-15
under the Securities Exchange Act of 1934, as amended, we are also filing new certifications of our principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended, as exhibits to this Form
10-K/A.
Because no financial statements are included in this Form
10-K/A
and this Form
10-K/A
does not contain or amend any disclosure with respect to Items 307 or 308 of Regulation
S-K
promulgated by the SEC, paragraphs 3, 4 and 5 of the Section 302 certifications have been omitted. In addition, this Form
10-K/A
amends Item 15 of Part IV of the Original Form
10-K
to reflect the filing of these Section 302 certifications as exhibits. We are not including the certifications under Section 906 of the Sarbanes-Oxley Act of 2002, as amended, as no financial statements are being filed with this Form 10-K/A
.
Except as described above, this Form
10-K/A
does not amend any of the other information set forth in the Original Form
10-K.
The Original
Form 10-K
continues to speak as of the date of the Original Form
10-K,
and we have not updated the disclosures contained in the Original Form
10-K
to reflect any events that occurred at a date subsequent to the filing of the Original Form
10-K
other than as expressly indicated in this Form
10-K/A.
Accordingly, this Form
10-K/A
should be read in conjunction with the Original Form
10-K
and with our filings with the SEC subsequent to the filing of the Original Form
10-K.
2
Table of Contents

TABLE OF CONTENTS
Page #
Page #
3
PART I
5
Risk Factors
14
Unresolved Staff Comments
24
Cybersecurity
24
Properties
25
Legal Proceedings
25
Mine Safety Disclosures
25
PART IIIII
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
26
Item 10.6.[RESERVED]
26
Management’s Discussion and Analysis of Financial Condition and Results of Operations
27
Quantitative and Qualitative Disclosures About Market Risk
42
Financial Statements and Supplementary Data
43
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
88
88
92
92
PART III
4
93
8
93
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
31
93
34
94
37
94
PART IV
PART IV
Item 15.Exhibits,Exhibit and Financial Statement Schedules39
95
80
42
98
“Safe Harbor” Statement under the Securities Litigation Reform Act2

Table of 1995:Contents

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

This Amendment No. 1 to Annual Report on
Form 10-K/A
10-K contains certain forward-looking statements“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995federal securities laws that involve risks and uncertainties. The termsTerms such as “aim,” “anticipate,” “believe,” “contemplates,” “continues,” “could,” “ensure,” “estimate,” “expect,” “forecasts,” “if,” “intend,” “likely,” “may,” “might,” “objective,” “outlook,” “plan,” “positioned,” “potential,” “predict,” “probable,” “project,” “shall,” “should,” “strategy,” “will,” “would,” and variations of them and other words and terms of similar meaning and expression (and the negatives of such words and terms) are intended to identify forward-looking statements. Forward-looking statements can also be identified by the fact that they do not relate strictly to historical or current facts. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These statements are based on management’s current expectations, intentions or beliefs as of the date they are made and are subject to a number of factors, assumptions and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Factors that could cause or contribute to such differences or that might otherwise impact our business, financial condition and results of operations include:

•inventory obsolescence;
•work stoppages and other disruptions at transportation centers or shipping ports;
•the reliance of TestEquity Acquisition, LLC ("TestEquity") on a significant supplier for a significant amount of its product inventory;
•changes in our customers, product mix and pricing strategy;
•disruptions of our information and communication systems;
•cyber-attacks or other information security incidents;
•the inability to successfully recruit, integrate and retain productive sales representatives;
•difficulties in integrating the business includeoperations of TestEquity and 301 HW Opus Holdings, Inc., which conducts business as Gexpro Services ("Gexpro Services"), with our legacy Lawson Products operations, and/or the risk factors set forthfailure to successfully combine those operations within our expected timetable;
•failure to retain talented employees, managers and executives;
•the inability of management to successfully implement changes in Item 1Aoperating processes;
•various risks involved in any pursuit or completion by us of additional acquisitions;
•competition in the markets in which we operate;
•potential impairment charges for goodwill and other intangible assets;
•changes that affect governmental and other tax-supported entities;
•failure to maintain effective internal controls over financial reporting;
•our significant amount of indebtedness;
•failure to adequately fund our operating and working capital needs through cash generated from operations and borrowings available under our credit facility;
•failure to meet the covenant requirements of our credit facility;
•government efforts to combat inflation, along with other interest rate pressures, could lead to higher financing costs;
•declines in the market price of our common stock (the "DSG common stock");
•the significant influence of Luther King Capital Management Corporation ("LKCM") over the Company in light of its ownership percentage;
•any sales of shares of DSG common stock held by entities affiliated with LKCM or the possibility of any such sales;
•violations of environmental protection regulations;
•changes in tax matters;
•risks arising from our international operations;
•potential limitations on our ability to use our net operating losses and certain other tax attributes generated prior to the Mergers (as defined below);
•public health emergencies;
•business uncertainties as a result of the OriginalMergers;
Form 10-K,
as updated by•stockholder litigation relating to the riskMergers;
•a downturn in the economy or in certain sectors of the economy;
•changes in energy costs, tariffs, transportation costs and the cost of raw materials used in our products, and other inflationary pressures;
•supply chain constraints, inflationary pressure and labor shortages; and
•foreign currency exchange rate changes.

3

Table of Contents

A detailed discussion of various factors that could cause actual results to differ materially from those described in the forward-looking statements is set forth in Part II,1, Item 1A, "Risk Factors" of our Quarterlythis Annual Report on Form
10-Q
for the fiscal quarter ended March 31, 2022.
The Company undertakes 10-K. We undertake no obligation to update any such factors, assumptions and uncertainties or to publicly announce the results of any revisions torevise any forward-looking statementsstatement contained herein, whether as a result of new information, futureto reflect events or otherwise. Any referencescircumstances after the date on which such statement is made or to our website in this Amendment No. 1 to Annual Report on Form
10-K/A
are not and should notreflect the occurrence of unanticipated events or otherwise, except as may be considered an incorporationrequired under applicable law.
4

Table of information included on our website into this Amendment No. 1 to Annual Report on FormContents
10-K/A.
Lawson Products,PART I

ITEM 1. BUSINESS.

Overview

Distribution Solutions Group, Inc., a Delaware corporation ("DSG"), is referreda global specialty distribution company providing value-added distribution solutions to the maintenance, repair and operations ("MRO"), original equipment manufacturer ("OEM") and industrial technology markets. DSG has three principal operating companies: Lawson Products, Inc., an Illinois corporation ("Lawson"), TestEquity Acquisition, LLC, a Delaware limited liability company ("TestEquity"), and 301 HW Opus Holdings, Inc., a Delaware corporation conducting business as Gexpro Services ("Gexpro Services"). The complementary distribution operations of Lawson, TestEquity and Gexpro Services were combined on April 1, 2022 to create a global specialty distribution company. A summary of the Mergers (as defined below), including the legal entities party to the transactions and the stock consideration, is presented below.

Through its collective businesses, DSG is dedicated to helping customers lower their total cost of operation by increasing productivity and efficiency with the right products, expert technical support, and fast, reliable delivery to be a one-stop solution provider. DSG serves approximately 180,000 distinct customers in several diverse end markets supported by approximately 3,700 dedicated employees and strong vendor partnerships. DSG ships from strategically located distribution and service centers to customers in North America, Europe, Asia, South America and the Middle East. DSG was originally incorporated in Illinois in 1952 and was reincorporated in Delaware in 1982.

Unless the context requires otherwise, references in this Annual Report on Form 10-K to “DSG”, the “Company”, "we", "our" or "us" refer to Distribution Solutions Group, Inc., and all entities consolidated in the accompanying consolidated financial statements.
10-K/A
Combination with TestEquity and Gexpro Services

On December 29, 2021, DSG entered into:

• an Agreement and Plan of Merger (the “TestEquity Merger Agreement”) by and among (i) LKCM TE Investors, LLC, a Delaware limited liability company (the “TestEquity Equityholder”), (ii) TestEquity, which was a wholly-owned subsidiary of the TestEquity Equityholder, (iii) DSG and (iv) Tide Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary of DSG (“Merger Sub 1”), pursuant to the terms and subject to the conditions of which the parties agreed, among other things, that Merger Sub 1 would merge with and into TestEquity, with TestEquity surviving the merger as a wholly-owned subsidiary of DSG (the “TestEquity Merger”); and

• an Agreement and Plan of Merger (the “Gexpro Services Merger Agreement” and, together with the TestEquity Merger Agreement, the “Merger Agreements”) by and among (i) 301 HW Opus Investors, LLC, a Delaware limited liability company (the “Gexpro Services Stockholder”), (ii) Gexpro Services, which was a wholly-owned subsidiary of the Gexpro Services Stockholder, (iii) DSG and (iv) Gulf Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of DSG (“Merger Sub 2”), pursuant to the terms and subject to the conditions of which the parties agreed, among other things, that Merger Sub 2 would merge with and into Gexpro Services, with Gexpro Services surviving the merger as a wholly-owned subsidiary of DSG (the “Gexpro Services Merger” and, together with the TestEquity Merger, the “Mergers”).

Completion of the TestEquity Merger

On April 1, 2022 (the "Merger Date"), the TestEquity Merger was consummated pursuant to the TestEquity Merger Agreement. In accordance with the TestEquity Merger Agreement, Merger Sub 1 merged with and into TestEquity, with TestEquity surviving as a wholly-owned subsidiary of DSG.

In accordance with and under the terms of the TestEquity Merger Agreement, in connection with the closing of the TestEquity Merger on the Merger Date, DSG: (i) issued to the TestEquity Equityholder 6,600,000 shares of DSG common stock, (ii) on behalf of TestEquity, paid certain indebtedness of TestEquity and (iii) on behalf of TestEquity, paid certain transaction expenses of TestEquity.

5


The TestEquity Merger Agreement provided that up to an additional 1,400,000 shares of DSG common stock would be potentially issuable to the TestEquity Equityholder in accordance with, and subject to the terms and conditions of, the earnout provisions of the TestEquity Merger Agreement. On March 20, 2023, DSG issued 1,400,000 shares of DSG common stock to the TestEquity Equityholder (the "TestEquity Holdback Shares") pursuant to the terms of the earnout provisions of the TestEquity Merger Agreement. The TestEquity Holdback Shares issued represented the maximum number of additional shares that could be issued under the TestEquity Merger Agreement, and no further shares are available for issuance, and no additional shares will be issued, in connection with the TestEquity Merger Agreement. Refer to Note 8 – Earnout Liabilities for information about the earnout derivative liability related to the TestEquity Holdback Shares.

Completion of the Gexpro Services Merger

On the Merger Date, the Gexpro Services Merger was consummated pursuant to the Gexpro Services Merger Agreement. In accordance with the Gexpro Services Merger Agreement, Merger Sub 2 merged with and into Gexpro Services, with Gexpro Services surviving as a wholly-owned subsidiary of DSG.

In accordance with and under the terms of the Gexpro Services Merger Agreement, in connection with the closing of the Gexpro Services Merger on the Merger Date, DSG: (i) issued to the Gexpro Services Stockholder 14,000,000 shares of DSG common stock, (ii) on behalf of Gexpro Services, paid certain indebtedness of Gexpro Services and (iii) on behalf of Gexpro Services, paid certain specified transaction expenses of Gexpro Services.

The Gexpro Services Merger Agreement provided that up to an additional 2,000,000 shares of DSG common stock would be potentially issuable to the Gexpro Services Stockholder in accordance with, and subject to the terms and conditions of, the earnout provisions of the Gexpro Services Merger Agreement. On March 20, 2023, DSG issued 2,000,000 shares of DSG common stock to the Gexpro Services Stockholder (the “Gexpro Services Holdback Shares”) pursuant to the terms of the earnout provisions of the Gexpro Services Merger Agreement. The Gexpro Services Holdback Shares issued represented the maximum number of additional shares that could be issued under the Gexpro Services Merger Agreement, and no further shares are available for issuance, and no additional shares will be issued, in connection with the Gexpro Services Merger Agreement.

As of April 1, 2022, approximately 1,076,000 of the Gexpro Services Holdback Shares had been expected to be issued under the first earnout opportunity in the Gexpro Services Merger Agreement based on certain earnout metrics related to the consummation of certain additional acquisitions which were completed prior to the Merger Date. Under the Gexpro Services Merger Agreement, if any Gexpro Services Holdback Shares remained after the calculation of the first earnout opportunity, there was a second earnout opportunity under the Gexpro Services Merger Agreement based on certain earnout performance metrics. On March 20, 2023, all 2,000,000 Gexpro Services Holdback Shares were issued under the earnout opportunities. The incremental 924,000 Gexpro Services Holdback Shares that were issued in excess of the 1,076,000 Gexpro Services Holdback Shares that were originally expected to be issued had been remeasured at fair value immediately prior to and reclassified to equity at December 31, 2022. Refer to Note 8 – Earnout Liabilities for information about the earnout derivative liability related to the Gexpro Services Holdback Shares.

Accounting for the Mergers

TestEquity and Gexpro Services were treated as a combined entity as the accounting acquirer for financial reporting purposes, and DSG was identified as the accounting acquiree. Accordingly, periods prior to the April 1, 2022 Merger Date reflect the results of operations of TestEquity and Gexpro Services on a consolidated basis, and the results of operations of DSG's legacy Lawson business are only included subsequent to the April 1, 2022 Merger Date.

For more information about the Mergers, refer to Note 3 – Business Acquisitions in Item 8. Financial Statements and Supplementary Data.

Recent Events

Stock Split

On August 15, 2023, DSG announced that its Board of Directors approved and declared a two-for-one stock split (the “Stock Split”) which entitled each stockholder of record as of the close of business on August 25, 2023 to receive one additional share of DSG common stock for each share of DSG common stock then-held. The additional shares were
6


distributed after the close of trading on August 31, 2023, and shares of DSG common stock began trading at the split-adjusted basis on September 1, 2023. Accordingly, all share and per share amounts have been retroactively adjusted to reflect the impact of the Stock Split for all periods presented herein.

In order to implement the Stock Split, on August 31, 2023, DSG filed a Third Amended and Restated Certificate of Incorporation of DSG with the Secretary of State of the State of Delaware to increase the number of authorized shares of DSG common stock from 35,000,000 to 70,000,000, which became effective on that date.

HIS Company, Inc. Acquisition

On March 30, 2023, DSG entered into a Stock Purchase Agreement (the “Purchase Agreement”), with various parties for the acquisition of all of the issued and outstanding capital stock of HIS Company, Inc., a Texas corporation (“Hisco,” and the "Hisco Transaction"), a distributor of specialty products serving industrial technology applications. DSG completed the Hisco Transaction on June 8, 2023. The total purchase consideration exchanged for the Hisco Transaction was $267.3 million, net of cash acquired of $12.2 million, at closing, with a potential additional earn-out payment subject to Hisco achieving certain performance targets. DSG will also pay $37.5 million in cash or DSG common stock in retention bonuses to certain Hisco employees that remain employed with Hisco or its affiliates for at least twelve months after the closing of the Hisco Transaction.

In connection with the Hisco Transaction, DSG combined the operations of TestEquity and Hisco, creating one of the largest suppliers serving the electronics design, production, and repair industries. DSG funded the Hisco Transaction with borrowings under its amended and restated credit facility and proceeds raised from the Rights Offering with existing stockholders, discussed below. Refer to Note 3 – Business Acquisitions for further details about Hisco and the Hisco Transaction.

The Purchase Agreement allowed certain eligible Hisco employees to invest all or a portion of their respective closing payment in DSG common stock at $22.50 per share, up to an aggregate value of DSG common stock issued to such eligible Hisco employees of $25.0 million. During 2023, the Company issued 144,608 shares of DSG common stock to the eligible Hisco employees and received approximately $3.3 million.

Debt Amendment

On June 8, 2023, the Company and certain of its subsidiaries entered into the First Amendment to Amended and Restated Credit Agreement (the “First Amendment”), which amended the Amended and Restated Credit Agreement, dated as of April 1, 2022 (as amended by the First Amendment, the “2023 Amended Credit Agreement”), by and among the Company, certain subsidiaries of the Company as borrowers or guarantors, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent. The First Amendment provides for a $305 million incremental term loan and for the Company to increase the commitments from time to time by up to $200 million in the aggregate, subject to, among other things, receipt of additional commitments from existing and/or new lenders and pro forma compliance with certain financial covenants. Refer to Note 9 – Debt for additional information about the 2023 Amended Credit Agreement.

Rights Offering

On May 30, 2023, the Company issued 4,444,444 shares of DSG common stock for net proceeds of approximately $98.5 million pursuant to a subscription rights offering (the "Rights Offering"). The Rights Offering provided one transferable subscription right for each share of DSG common stock held by holders of DSG common stock on record as “Lawson,” “Lawson Products,”of the “Company,” “we,” “us,”close of business on May 1, 2023. Each subscription right entitled the holder to purchase 0.0525 shares of DSG common stock at a subscription price of $22.50 per share. The subscription rights were transferable but were not listed for trading on any stock exchange or “our.”market. In addition, holders of subscription rights who fully exercised their subscription rights were entitled to oversubscribe for additional shares of DSG common stock, subject to proration. Refer to Note 11 – Stockholders' Equity for additional information about the Rights Offering.

3
DSG Vision and Strategic Focus

TableThe complementary distribution operations of Contents
Lawson, TestEquity and Gexpro Services were combined in 2022 for the purpose of creating a global specialty distribution company enabling each of Lawson, TestEquity and Gexpro Services to maintain their respective high-touch, value-added service delivery models and customer relationships in their specialty
7
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

DIRECTOR INFORMATION
distribution businesses under the leadership of their separate business unit management teams. The DSG leadership team provides oversight to these separate leadership teams. This structure helps the combined company to leverage best practices, back-office resources and technologies across the three operating companies to help drive cost synergies and efficiencies. The combined company has the ability to utilize its combined financial resources to accelerate a strategy of expansion through both business acquisitions and organic growth.
The current
By-LawsOrganic Growth Strategy
of

We intend to grow our businesses organically by exploring growth opportunities that provide different channels to reach customers, increase revenue and generate positive results. We plan to utilize our Company structure to grow organic revenue through collaborative selling across our customer bases and expanding the Company providedigital capabilities across our platform.

Acquisition Strategy

In addition to organic growth, we plan to actively pursue acquisition opportunities complementary to our businesses and that the Board of Directors shall consist of such number of members, between five and nine, as the Board determines from timewe believe will be financially accretive to time. The size of the Board of Directors is currently set at seven members.our organization.

Human Capital Resources - General Employee Information

Our Boardorganization supports a culture of Directorscontinuous improvement and emphasizes the importance of addressing the needs of our customers. We require our employees to act with integrity in every aspect of our business while encouraging them to be results driven, team oriented and progressive.

As of December 31, 2023, our combined workforce included approximately 3,700 individuals, comprised of approximately 1,662 in sales and marketing, approximately 1,465 in operation and distribution and approximately 585 in management and administration. Approximately 1,685 individuals are within Lawson, 1,160 are within TestEquity, 712 are within Gexpro Services, with the remaining in corporate or other non-reportable segments.

Segments

The Company’s three reportable segments are (i) Lawson, (ii) Gexpro Services and (iii) TestEquity, which align with our principal operating businesses. The following is a discussion of these reportable segments. For more information about our segments, refer to Note 14 – Segment Information in Item 8. Financial Statements and Supplementary Data.

Lawson

Lawson is a distributor of specialty products and services to the industrial, commercial, institutional and governmental MRO marketplace. Lawson primarily distributes MRO products to its customers through a network of sales representatives throughout the United States and Canada.

Background and Operations — Lawson delivers quality products to customers and offers them extensive product knowledge, product application expertise and Vendor Managed Inventory ("VMI") services. Lawson competes for business primarily by offering a value-added service approach wherein highly trained sales representatives manage the product inventory for customers. The VMI model makes it less likely that customers will run out of a product while optimizing their inventory levels. Lawson ships products to its customers in all 50 states, Puerto Rico, Canada, Mexico and the Caribbean.

Strategic Focus — Lawson's vision is to be its customers' first choice for MRO solutions that improve their operating performance. Lawson plans to achieve its vision by working closely with customers to maintain and enhance their operations by providing them with quality products, superior service and innovative solutions and to grow both organically and through acquisitions.

Industry and Competition — The MRO market is comprised of companies that buy and stock products in bulk and supply these products to customers on an as needed basis. The customer benefits from our knowledge and the convenience of ordering smaller quantities maintained by us.

There is a significant amount of competitive fragmentation by geography and product within the industry. We encounter competition from several national distributors and manufacturers and a large number of regional and local distributors. Some
8


competitors have greater financial and personnel resources, handle more extensive lines of merchandise, operate larger facilities and price some merchandise more competitively than we do.

Customers — During 2023, the Lawson segment sold products to over 59,000 distinct customers. Lawson's largest customer accounted for approximately 3% of consolidated revenue. In 2023, approximately 91% of Lawson's revenue was generated in the United States and approximately 9% in Canada. Although seasonality is not significant, due to fewer selling days and less activity during the holiday season, revenue in the fourth quarter is historically lower than the first three quarters of the year.

Lawson's customers operate in a variety of industries. Lawson's revenue percentages by customer end markets in 2023 were as follows:
End MarketsPercentage of Lawson Revenue
Manufacturing22%
Automotive21%
Government and Military12%
Construction8%
Equipment rental6%
Transportation6%
Agriculture4%
Mining3%
Other18%
100%

Lawson's customers include a wide range of purchasers of industrial supply products from small repair shops to large national and governmental accounts.

Products — Lawson's revenue percentages by product categories in 2023 were as follows:
Product CategoryPercentage of Lawson Revenue
Fastening systems19%
Fluid power15%
Electrical12%
Aftermarket automotive supplies12%
Specialty chemicals12%
Cutting tools and abrasives8%
Safety4%
Welding and metal repair2%
Other16%
100%

Lawson offers over 110,000 different products of which over 78,000 products are maintained in distribution centers. Lawson strives to carry sufficient inventory to ensure product availability and rapid processing of customer orders. Accurate forecasting of customer demand is essential to establish the proper level of inventory for each product. Inventory levels need to be sufficient to meet customer demand while avoiding the costs of stocking excess items.

During 2023, Lawson purchased products from approximately 2,100 suppliers and no single supplier accounted for more than 5% of these purchases. The loss of one core supplier could affect operations by hindering the ability to provide full service to customers.

Lawson's quality control department tests its product offerings to help ensure they meet our customers' specifications. Lawson recommends solutions to help customers maximize product performance and avoid costly product failures. Lawson's
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engineering department provides technical support for products and offers on-site problem solutions. It also develops and presents product safety and technical training seminars tailored to meet customers' needs.

Human Capital Resources — As of December 31, 2023, Lawson's workforce had 1,685 individuals: approximately 1,153 in sales and marketing of whom 870 are field sales representatives, 406 in operation and distribution and 126 in management and administration. Approximately 12% of the Lawson workforce is covered by two collective bargaining agreements. We believe that our relationships with our employees and their collective bargaining organizations are satisfactory.

Sales force growth is a strategic driver of the Lawson business, and increased sales coverage throughout the United States and Canada directly impacts Lawson's success as an organization. Lawson is focused on identifying and recruiting individuals who are a good fit with its sales organization and providing them with the tools needed to succeed, such as training about Lawson's products and on the successful and effective ways to call potential customers and maintain relationships with existing customers. Lawson's product training educates its sales team on the optimal uses of products, enabling them to provide the proper products and customized solutions to address customers' needs, including technical expertise and on-site problem resolution. During 2023 Lawson expanded its team of inside sales representatives to support customer demand.

Lawson's leadership team is also focused on reducing sales force turn-over and on offering growth opportunities for its sales representatives.

TestEquity

TestEquity is a leading distributor of test and measurement equipment and solutions, industrial and electronic production supplies, vendor managed inventory programs, and converting, fabrication and adhesive solutions from its leading manufacturing partners. TestEquity operates primarily through its six distribution brands, namely TestEquity, Hisco, TEquipment, Techni-Tool, Jensen Tools and Instrumex, and is focused primarily in North America with a network of sales representatives throughout the United States, Canada, Mexico, Germany and the United Kingdom.

Background and Operations — Based out of Moorpark, California, TestEquity is a large, comprehensive provider of electronic test solutions in the United States supporting the aerospace and defense, wireless and communication, semiconductors, industrial electronics and automotive, and electronics manufacturing industries. TestEquity designs, rents and sells a full line of high-quality environmental test chambers. In addition to a large array of test and measurement products, TestEquity also offers calibration, refurbishment and rental solutions and a wide range of refurbished products. TestEquity continues to benefit from electronification of products across a range of industries including the internet of things ("IOT"), electric vehicles ("EV") and the 5th generation mobile network ("5G"). TestEquity offers over 300,000 products and 800 manufacturer brands with overlap across the following personsbrands.

Hisco is a specialty distribution company serving the electronic assembly, aerospace and defense, medical and other industrial markets. Hisco also offers specialized warehousing for cold storage and vendor managed inventory services.

TEquipment (acquired as Interworld Highway, LLC) is one of the top distributors for both test and measurement and electronic production supplies in the United States with its e-commerce focused strategy, broad product range, amplified by access to core TestEquity products, and strong technical support for their customers.

Techni-Tool is one of the industry’s largest solder, soldering equipment and electronic production distributors. Techni-Tool offers a wide range of products to support electronic production as well as compliance testing. In addition to the brand specific products offered, Techni-Tool also provides VMI solutions and dedicated technical support.

Jensen Tools is a top distributor for the electronics MRO customer base. In addition to being a distributor of handheld tools from leading brands, Jensen Tools offers private label Jensen branded hand tools that have been developed over years of customer usage and manufactured to a specified and demanding tolerance level. Jensen Tools employs a dedicated team of engineering, operational and sales professionals who focus on designing and building quality tool kits for its customers.

Instrumex is a small refurbished test and measurement distributor, based in Munich Germany, with a global reach.

Strategic Focus — TestEquity intends to grow revenue both organically and through acquisitions and continuing to expand and improve its service offerings to its customers. In particular, TestEquity strives to improve its digital experience,
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with a consistent approach for all of its brands. TestEquity intends to seek to increase its market share through continued expansion of product lines and greater penetration of the e-commerce market, enabled through investment in key digital talent and leverage of the existing TestEquity and TEquipment platforms.

Industry and Competition — Across both the test and measurement and electronic production supplies businesses, the North American market is fragmented with competitors ranging from large global distributors to national and regional distributors. Some competitors have greater financial and personnel resources, handle more extensive lines of merchandise, operate larger facilities and price some merchandise more competitively than TestEquity.

Customers — TestEquity serves over 100,000 customers at 125,000 locations across the United States and abroad, primarily in Canada, Europe and Mexico with approximately 85% of TestEquity’s revenue in 2023 derived from customers in the United States. There is not significant seasonality in TestEquity’s business across its fiscal quarters. However, the number of business days in a quarter has an impact on TestEquity’s revenue and profitability.

TestEquity's revenue percentages by customer end markets in 2023 were as follows:
End MarketsPercentage of TestEquity Revenue
Industrial electronics and electronics manufacturing46%
Aerospace and defense17%
Education4%
Wireless and communications technology4%
Semi-conductor production3%
Other26%
100%

Products — Approximately 30,000 fast-moving products are typically held in inventory across forty-eight distribution centers available for next day delivery. TestEquity’s revenue percentages by product categories in 2023 were as follows:
Product CategoryPercentage of TestEquity Revenue
Electronic production supplies54%
Test & measurement43%
Proprietary products3%
100%

TestEquity has 34 key suppliers that made up approximately 48% of TestEquity’s purchases in 2023. In total, TestEquity purchases from approximately 1,000 suppliers across the marketplace.

Human Capital Resources — TestEquity supports a culture of continuous improvement, integrity and diversity. TestEquity prides itself on its ability to meet its customers’ needs in a driven and progressive manner. As of December 31, 2023, TestEquity's workforce had 1,160 individuals, comprised of approximately 253 in sales and marketing, 544 in operation and distribution and 363 in administration and support.

Gexpro Services

Gexpro Services is a world-class global supply chain solutions provider, specializing in the development of mission critical production line management, aftermarket and field installation programs. Gexpro Services provides comprehensive supply chain management solutions, including a full technology suite offering of VMI, kitting, global logistics management, manufacturing localization and import expertise, value engineering and quality assurance. Gexpro Services' end-to-end project management is designed to support manufacturing OEMs with their engineered material specifications, fulfillment, and quality requirements to improve their total cost of ownership. Gexpro Services has manufacturing and supply chain operations in over 31 service center sites across ten countries including key geographies in North America, South America, Asia, Europe, and the Middle East. Gexpro Services serves customers in six vertical markets, including renewables, industrial power, consumer and industrial, technology, transportation, and aerospace and defense.
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Background and Operations— Gexpro Services was formed in November 2019 and, in February 2020, acquired the “Gexpro Services” business from French distributor Rexel S.A. via a carve-out acquisition.

As a top distributor and service provider to the OEM market, Gexpro Services has approximately 2,800 suppliers offering approximately 47,000 products. These products are inventoried and sourced through 31 locations in North America, South America, Asia, Europe and the Middle East.

Strategic Focus— Gexpro Services intends to grow organically through market share expansion primarily through new product introduction, increased sales of products and services to existing customers and expansion of its customer base. Gexpro Services believes that its services benefit its customers by helping them reduce their direct and indirect procurement costs and total cost of ownership for high volume, low value Class C parts, and that its services can help drive substantial cost savings for its customers. Additionally, Gexpro Services intends to grow its business through strategic, accretive acquisitions, and through continued improvement in service and product offerings to its customers.

Industry and Competition — Gexpro Services operates in a large, fragmented market with many competitors servicing OEMs as well as the MRO segment of the Class C product line. Competitors of Gexpro Services include large global distributors as well as national, regional and local distributors.

Customers — Gexpro Services serves over 1,900 customers in over 38 countries through its 30 facilities. In 2023, approximately 69% of Gexpro Services' revenues were generated in the United States. Through its customer base, Gexpro Services provides VMI services with over 100,000 installed bins which allow its customers to maintain the necessary on-hand inventory levels to support their production cycles. Gexpro Services’ value-added processes for its customers include VMI, packaging and kitting, engineering, product standardization when appropriate, sales and technical support, global sourcing and quality assurance.

Approximately 67% of Gexpro Services’ revenue in 2023 was from customers under long-term agreements. Gexpro Services’ largest customer represented approximately 21% of Gexpro Services’ 2023 total revenue while the top 20 customers represented approximately 75% of Gexpro Services’ 2023 total revenue.

Gexpro Services has existing customers in many different industry end markets. Gexpro Services' revenue percentages by customer end markets in 2023 were as follows:
End MarketsPercentage of Gexpro Services Revenue
Renewable energy29%
Industrial power22%
Transportation19%
Consumer and industrial15%
Aerospace and defense10%
Technology5%
100%

Products — Gexpro Services' revenue percentages by product categories in 2023 were as follows:
Product CategoryPercentage of Gexpro Services Revenue
Hardware46%
Electrical26%
Mechanical16%
Fabrications12%
100%

Approximately 55% of Gexpro Services’ suppliers are based in the United States, which helps limit the risk of increased freight and logistics costs; however, many of these suppliers source their products from overseas. Gexpro Services maintains
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favorable and long-tenured relationships with approximately 2,800 suppliers, with the largest supplier representing approximately 3% of Gexpro Services’ total product purchases in 2023 while the top 10 suppliers represented approximately 19% of total product purchases in 2023.

Human Capital Resources —Gexpro Services supports a culture of continuous improvement, integrity and diversity. Gexpro Services prides itself on being a full value provider to its customers supported with a team committed to providing world-class customer service. As of December 31, 2023, Gexpro Services' workforce had 712 individuals, comprised of approximately 225 in sales and marketing, 417 in operation and distribution and 70 in management and administration.

Available Information

We file with, or furnish to, the Securities and Exchange Commission ("SEC") annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and, as applicable, amendments to those reports pursuant to Section 13(a) or 15(d) of the Exchange Act. The public can obtain copies of these materials by accessing the SEC's website at http://www.sec.gov. In addition, as soon as reasonably practicable after such materials are filed with, or furnished to, the SEC, we make copies of such materials available to the public free of charge through our website at www.distributionsolutionsgroup.com. Information on our website is not incorporated by reference into this report. We also make available on our website our Code of Ethics, Corporate Governance Principles and the charters of the committees of our Board of Directors.

Information About Our Executive Officers

The executive officers of DSG as of February 1, 2024 were as follows:
NameAgeYear First Named to Present OfficePosition
J. Bryan King522022Chairman, President and Chief Executive Officer
Ronald J. Knutson602014Executive Vice President, Chief Financial Officer and Treasurer
David S. Lambert502021Vice President, Controller and Chief Accounting Officer

Biographical information for the datepast five years relating to each of this Form
10-K/A:
                                        
 
Name
 
Age 
(1)
  
First Year Elected/
Appointed Director
   
 Andrew B. Albert 76  2009  
 Michael G. DeCata 64  2013  
 I. Steven Edelson 62  2009  
 Lee S. Hillman 66  2004  
 J. Bryan King (Chairman of the Board) 51  2017  
 Mark F. Moon 59  2019  
 Bianca A. Rhodes 63  2021  
(1)
Ages as of April 15, 2022.
Additional biographical information about our directorsexecutive officers is set forth below:
below.

Andrew B. Albert
has served as Managing Director and Operating Partner of Svoboda Capital Partners LLC, a private equity investment firm, since February 2007. From December 2000 through May 2006, Mr. Albert served as ChairmanKing was elected President and Chief Executive Officer of Nashua Corporation, a manufacturer and converter of specialty paper products and toner.in May 2022. Mr. Albert also served as
non-executive
Chairman of Nashua’s Board of Directors from December 2006 through September 2009. Mr. Albert serves as a Director on the Boards of Transco, Inc., a diversified industrial company, the Parkinson’s Foundation and the Advisory Board of the University of Wisconsin Entrepreneurship Center. These professional experiences, along with knowledge and experience acquired in managing distribution and technology firms, qualify Mr. Albert to serve as a Director.
Michael G. DeCata
was appointed President and CEO of Lawson Products on September 24, 2012. He was elected to the Board of Directors in 2013. As previously reported, Mr. DeCata has agreed that, effective as of May 1, 2022, Mr. DeCata will resign from his positions as President and CEO, and his position as a director of Lawson Products, and that he will serve a consultant to Lawson Products. Prior to his appointment as President and CEO of Lawson Products, Mr. DeCata worked in private equity, conducting acquisition analysis and due diligence for private equity firms in New York, Connecticut and Boston from 2009 to 2012. Prior to that, he was President of Chefs’ Warehouse, a $300 million specialty food distributor from 2006 to 2009. From 2008 until 2013, he served on the Board of Directors of Crescent Electric Supply. Prior to his position at Chefs’ Warehouse, he was the Vice President of Fleet Operations and also led the Contractor Supplies Division of United Rentals, a $4.0 billion construction equipment rental company. From 1997 until 2002, he led the eastern region of W.W. Grainger representing over $1.4 billion in sales and consisting of 152 branch locations and a team of approximately 2,000. Mr. DeCata began his career at General Electric and worked in a variety of cross-functional as well as cross-business positions from 1979 until 1997. Mr. DeCata currently serves on the Board of Directors of the National Association of Wholesale Distributors (“NAW”) as the Chairman of the Board of Directors of the NAW Institute. These professional experiences qualify him to serve as a Director.
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I. Steven Edelson
has served as
co-founder
and now a
non-Managing
Director of International Facilities Group, a leading facilities development and management company, since June 1995. Mr. Edelson is the founding principal of IFG Development Group, which provides development advisory services, as well as acts in a development capacity in multiple areas of the real estate industry. Mr. Edelson also serves as Principal and Managing Director of The Mercantile Capital Group, a Chicago-based private equity investment firm. Mr. Edelson is a co founder of GFRB llc., a global distribution company that specializes in supply chain optimization. Mr. Edelson is a Director of Bionanosim a leading drug delivery and drug discovery company based in Israel. Mr. Edelson is also a member of the Board of Governors of the Hebrew University in Jerusalem. Mr. Edelson is a Trustee at the Truman Institute for Peace and is the proud recipient of the 2005 Ellis Island Congressional Medal of Honor. In 2014, Mr. Edelson became a NACD Board Leadership Fellow. These professional experiences, along with Mr. Edelson’s particular knowledge and experience in capital management, qualify him to serve as a Director.
Lee S. Hillman
has served as the lead independent director of Lawson Products, Inc., since March 2017. Mr. Hillman has served as President of Liberation Advisory Group, a private management consulting firm, since 2003. Mr. HillmanKing has also served as Chief Executive Officer of Performance Health Systems, LLC, a business distributing Power Plate
™
and bioDensity
®
branded, specialty health and exercise equipment since 2012, and its predecessor since 2009. From February 2006 to May 2008, Mr. Hillman served as Executive Chairman and Chief Executive Officer of Power Plate International (“Power Plate”) and from 2004 through 2006 as CEO of Power Plate North America. Previously, from 1996 through 2002, Mr. Hillman was CEO of Bally Total Fitness Corporation, then the world’s largest fitness membership club business. Mr. Hillman currently serves as chair of the Audit Committee and member of the Compensation Committee of Business Development Corporation of America, chair of the Audit Committee of Broadtree Residential, Inc,, chair of the Audit Committee of Franklin BSP Capital Corporation and chair of the Audit Committee of Trinity Acquisition Corporation. Previously he has served as a member of the Board of Directors of HC2 Holdings, Inc., HealthSouth Corporation, Wyndham International, RCN Corporation (where he was Chairman of the Board), Bally Total Fitness Corporation (where he was Chairman of the Board), Continucare Corp.Company since 2017, and Professional Diversity Network, Inc. He alsohas served as a memberChairman of the Board of TrusteesDirectors of the Adelphia Recovery Trust. These professional experiences, along withCompany since March 2019. Mr. Hillman’s particular knowledgeKing has a career in investment management spanning over three decades and experience in restructuring businesses and havinghas served as Chief Executive Officer, Chief Financial Officer, and/Chairman or director of other publicly traded U.S. and international companies and as a former auditmanaging partner of an international accounting firm, qualify him to serve as a Director.
J. Bryanseveral industrial distribution companies. Mr. King
, CFA, is a Principal of Luther King Capital Management Corporation (“LKCM”), an
SEC-registered
investment adviser, with approximately $25.7 billion of assets under management as of March 31, 2022, and Founder and Managing Partner of LKCM Capital Group and LKCM Headwater Investments, the private capital investment group of LKCM.

Mr. Knutson has served as Executive Vice President, Chief Financial Officer and Treasurer since April 2014 and has served as Executive Vice President and Chief Financial Officer of the Company since July 2012.

Mr. Lambert has served as Vice President, Controller and Chief Accounting Officer of the Company since June 2021. Prior to joining the Company, Mr. Lambert served as the Corporate Controller, and previously the Assistant Controller, of Univar Solutions, a chemical distribution company, publicly traded on the NYSE from June 2017 through June 2021. Prior to that, Mr. Lambert served as the Director of Corporate Accounting and Reporting of Donnelley Financial Solutions, a financial compliance company, publicly traded on the NYSE from September 2016 through June 2017. Prior to these roles, Mr. Lambert held progressive roles within finance and accounting at several other publicly traded companies.


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ITEM 1A. RISK FACTORS.

Our operating results depend upon many factors and are subject to various risks and uncertainties, including those discussed below. The material risks and uncertainties known to us and described below may negatively affect our business, financial condition and results of operations. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair or otherwise adversely affect our business, financial condition and results of operations, and may give rise to or amplify many of the risks discussed below.

Business Risks

A significant portion of our inventory may become obsolete.

Our business strategy requires us to carry a significant amount of inventory to meet rapid processing of customer orders. If our inventory forecasting and production planning processes result in inventory levels exceeding the levels demanded by customers or should our customers decrease their orders with us, our operating results could be adversely affected due to costs of carrying the inventory and additional inventory write-downs for excess and obsolete inventory, which could materially adversely affect our business, financial condition and results of operations.

Work stoppages and other disruptions at transportation centers or shipping ports, along with other supply chain disruptions, may adversely affect our ability to obtain inventory and make deliveries to our customers.

Our ability to rapidly process customer orders is an integral component of our overall business strategy. Interruptions at our company-operated facilities or disruptions at a major transportation center or shipping port, due to events such as severe weather, labor interruptions, natural disasters, acts of terrorism, trade restrictions, government-imposed quotas or other events, could adversely affect our ability to maintain core products in inventory or deliver products to our customers on a timely basis or adversely affect demand for our products, which may in turn adversely affect our business, financial condition and results of operations. Similarly, other supply chain disruptions have impacted our ability to maintain certain core products in inventory and deliver products to customers on a timely basis, and may continue to impact our ability to do so. Such supply chain disruptions may adversely affect our business, financial condition and results of operations.

TestEquity relies on a single supplier for a significant amount of its product inventory, and any disruptions in such supplier’s business, operations or financial condition, or TestEquity’s relationship with such supplier, could have a material adverse effect on our business, financial condition and results of operations.

TestEquity relies on a single supplier for a significant amount of its product inventory, including electronic test and measurement equipment. During 2023 and 2022, the aggregate dollar amount of TestEquity’s purchases from that supplier represented approximately 11% and 25%, respectively, of the aggregate dollar amount of TestEquity’s purchases of product inventory from all of TestEquity’s suppliers during such periods. Any disruptions in that supplier’s business, operations or financial condition, or TestEquity’s relationship with this supplier, could have a material adverse effect on our business, financial condition and results of operations.

Changes in our customers, product mix and pricing strategy could cause our gross profit margin percentage to decline in the future.

From time to time, our businesses have experienced overall changes in the product mix demand of customers. When customers or product mix changes, there can be no assurance that we will be able to maintain our gross profit margins. Changes in our customers, product mix, volume of orders or prices charged, along with additional freight costs or lower productivity levels, could cause our gross profit margin percentage to decline. Our gross profit margin percentage may also come under pressure in the future if we increase the percentage of national accounts in our customer base, as sales to these customers are generally at lower margins.

Disruptions of our information and communication systems could adversely affect the Company.

We depend on our information and communication systems to process orders, purchase and manage inventory, maintain cost-effective operations, sell and ship products, manage accounts receivable collections and serve our customers. Disruptions in the operation of information and communication systems can occur due to a variety of factors including power outages, hardware failure, programming faults and human error. Disruptions in the operation of our information and
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communication systems, whether over a short or an extended period of time or affecting one or multiple distribution centers, could have a material adverse effect on our business, financial condition and results of operations.

Cyber-attacks or other information security incidents could have a material adverse effect on our business strategy, results of operations or financial condition and subject us to additional legal costs.

We are increasingly dependent on digital technology to process and record financial and operating data and communicate with our employees and business partners. During the normal course of business we receive, retain and transmit certain confidential information that our customers provide to purchase products or services or to otherwise communicate with us, as well as certain potentially sensitive information about our employees and other persons and entities.

Our technologies, systems, networks and data and information processes (and those of our business partners) have been, and may in the future be, the target of cyber-attacks and/or information security incidents that may have resulted in, or may in the future result in, the unauthorized release, misuse, loss or destruction of proprietary, personal and other information, or other disruption of our business operations, including compromise of our email systems. For example, in February 2022, Lawson became aware that its computer network was the subject of a cyber incident potentially involving unlawful access (the “Cyber Incident”). Because of the nature of the information that may have been potentially compromised, which may have included personal identifiable information and protected health information, we were required to notify the parties whose information was potentially compromised of the incident as well as various governmental agencies and have taken other actions, such as offering credit monitoring services. After this incident, we also reviewed our overall systems and processes, and implemented certain changes, including employee training, designed to improve our overall cybersecurity program, but we cannot assure you that these changes will be effective to prevent future incidents. In addition, from time to time our email systems (and those of our business partners communicating with us) have been subjected to malicious attacks, including phishing attacks.

Such attacks or incidents could have a material adverse effect on our business strategy, results of operations or financial condition and subject us to additional legal costs. For example, a putative class action lawsuit was filed against DSG in April 2023 asserting a variety of claims seeking monetary damages, injunctive relief and other related relief in connection with the Cyber Incident, which could result in additional legal and other costs.

The techniques used by criminals to obtain unauthorized access to sensitive data change frequently and often are not recognizable until launched against a target or until a breach has already occurred. Accordingly, we may be unable to anticipate these techniques or implement adequate preventative measures. In addition, we are exposed to growing and evolving risks arising from the use of Artificial Intelligence technologies by bad actors to commit fraud, misappropriate funds and facilitate cyberattacks. As cyber threats continue to evolve, we may be required to expend additional resources to continue to modify or enhance our protective measures or to investigate and fix any information security vulnerabilities.

We maintain and have access to data and information that is subject to privacy and security laws, data protection laws and applicable regulations. The interpretation and application of such laws, including federal, state and international laws, relating to the collection, use, retention, disclosure, security and transfer of personally identifiable data in the United States (including but not limited to the California Consumer Privacy Act and the California Privacy Rights Act), Europe (including but not limited to the European Union's General Data Protection Regulation) and elsewhere, are uncertain and evolving. Despite our efforts to protect such information, cyber, privacy or security incidents, or misplaced or lost data could have a materially adverse impact on our business strategy, results of operations or financial condition and may divert management and employee attention from other business and growth initiatives.

The inability to successfully recruit, integrate and retain productive sales representatives could adversely affect our business, financial condition and operating results.

We have committed to a plan to increase the size of our sales force. A successful expansion in our sales force requires us to identify under-served territories that offer the greatest potential growth opportunity, locate and recruit talented sales representatives, provide them with the proper training, and successfully integrate them into our organization. This expansion will require significant investment in capital and resources. The failure to identify the optimal sales territories, recruit and retain quality sales representatives and provide them with sufficient support could adversely affect our business, financial condition and results of operations.

It is also critical to retain the experienced and productive sales representatives that have historically contributed to the successes of our businesses. Failure to retain a sufficient number of talented, experienced and productive sales representatives could adversely affect our business, financial condition and results of operations.
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There may be difficulties in integrating certain operations of TestEquity’s and Gexpro Services’ respective businesses with our legacy operations, and the failure to successfully combine those operations within our expected timetable could adversely affect our future results and the market price of our common stock.

The Mergers involve the combination of businesses that previously operated as independent businesses. Management has devoted and will continue to devote, significant attention and resources to combine certain business operations of TestEquity and Gexpro Services with our legacy business operations. This may divert the time and attention of our management team and diminish their time to manage our businesses, service existing customers, attract new customers, develop new products, services and strategies and identify other beneficial opportunities.

If our management is not able to effectively manage the process following the closing of the Mergers, or if any significant business activities are interrupted as a result of this process, our businesses could suffer.

Furthermore, it is possible that the Mergers could result in the loss of key employees. If we are not able to fully realize the anticipated savings and synergies from the Mergers in a timely manner, or the cost to achieve these synergies is greater than expected, we may not fully realize the anticipated benefits (or any benefits) of the Mergers, or it may take longer than expected to realize any benefits. The failure to fully or timely realize the anticipated benefits could have a negative effect on the market price of DSG common stock.

Failure to retain talented employees, managers and executives could negatively impact our business and operating results.

Our success depends on, among other things, our ability to attract, develop and retain talented employees, including executives and other key managers. The loss of certain key executives and managers or the failure to attract and develop talented employees could have a material adverse effect on our business, financial condition and results of operations.

The inability of management to successfully implement changes in operating processes could lead to disruptions in our operations.

We strive to improve operational efficiencies throughout our organization and to identify and initiate changes intended to improve our internal operations. The implementation of changes to our current operations involves a risk that the changes may not work as intended, may disrupt related processes, may not be properly applied or may not result in accomplishing the intended efficiencies. Failure to successfully manage the implementation of these changes could lead to disruptions in our operations.

Any pursuit or completion by DSG of additional acquisition opportunities would involve risks that could adversely affect our business, financial condition and results of operations.

One of our growth strategies is to actively pursue additional acquisition opportunities which complement our business model. However, there are risks associated with pursuing acquisitions, which include the incurrence of significant transaction costs without the guarantee that such transactions will be completed and the risk that we may not realize the anticipated benefits of the acquisition once it is completed. We may fail to successfully identify the right opportunities and/or to successfully integrate the acquired businesses, operations, technologies, systems and/or personnel with those of DSG, which could adversely affect our business, financial condition and results of operations. See also the section entitled “Item 1A. Risk Factors – TestEquity Merger and Gexpro Services Merger Risks” for a discussion of various additional risk factors relating to our completed business combination with TestEquity and Gexpro Services.

We operate in highly competitive markets.

The marketplaces in which we operate are highly competitive. Our competitors include large and small companies with similar or greater market presence, name recognition, and financial, marketing, and other resources. We believe the competition will continue to challenge our business with their product selection, financial resources and services.

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We may be required to recognize impairment charges for goodwill and other intangible assets.

As a result of the closing of the Mergers on April 1, 2022 and other acquisitions completed during 2023 and 2022, we have a significant amount of goodwill and other intangible assets on our consolidated balance sheet as of December 31, 2023. In accordance with generally accepted accounting principles in the United States ("GAAP"), our management periodically assesses our goodwill and other intangible assets to determine if they are impaired. Significant negative industry or economic trends, disruptions to our business, an inability to effectively integrate acquired businesses, unexpected significant changes, planned changes in use of the assets, divestitures and market capitalization declines may impair goodwill and other intangible assets. Any charges relating to such impairments could materially and adversely affect our results of operations in the periods recognized, which could result in an adverse effect on the market price of DSG common stock.

Changes that affect governmental and other tax-supported entities, including but not limited to changes arising from geopolitical instability and military hostilities, could negatively impact our revenue and earnings.

A portion of our revenue is derived from the United States military and other governmental and tax-supported entities. These entities are largely dependent upon government budgets and require adherence to certain laws and regulations, including sanctions. Such sanctions could include restrictions on selling or importing goods, services, or technology in or from affected regions and travel bans and asset freezes impacting connected individuals and political, military, business, and financial organizations. In addition, geopolitical instability and military hostilities, such as the current Hamas-Israel military conflict and the Russia-Ukraine military conflict, could negatively impact our business Although we have not, do not currently and do not plan to conduct business operations in Gaza, Israel, Russia, Belarus, or Ukraine, it is not possible to predict the broader consequences of these ongoing conflicts, which could include sanctions, embargoes, increases or decreases in military spending or other geopolitical instability. Any decrease in the levels of defense and other governmental spending or the introduction of more stringent governmental regulations and oversight, arising from these ongoing conflicts or otherwise, could lead to reduced revenue or an increase in compliance costs which would adversely affect our business, financial condition and results of operations.

We are required to evaluate our internal controls over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 and any adverse results from such evaluation, and any failure to maintain effective internal controls over financial reporting, could result in a loss of investor confidence in our financial reports and could have an adverse effect on our stock price.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and applicable SEC rules, we are required to include in each Annual Report on Form 10-K a report by our management on our internal control over financial reporting. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. Each year, we must prepare or update the process documentation and perform the evaluation needed to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and applicable SEC rules in providing this report. During this process, if our management identifies one or more material weaknesses in our internal control over financial reporting, we will be unable to assert such internal control is effective. For example, management's report on our internal controls over financial reporting contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, identified a material weakness and concluded that we did not maintain effective internal controls over financial reporting as of December 31, 2022. Ensuring that we have adequate internal financial and accounting controls and procedures in place is a costly and time-consuming exercise that needs to be re-evaluated frequently. We and our independent auditors may in the future discover areas of our internal controls that need further attention and improvement, particularly with respect to any other businesses that we decide to acquire in the future.

One of our growth strategies is to actively pursue additional acquisition opportunities which complement our business model. These acquired businesses are typically private companies and may not have in place the financial organization, reporting and controls which are required for a U.S. public company. The cost of implementing this type of financial organization, reporting and controls in respect of the acquired business and integrating their financial reporting processes with our financial reporting processes may be significant. If there are limitations in the acquired businesses' financial organization, reporting and controls, or if we are unable to effectively integrate their financial reporting processes with our financial reporting processes, we could have, among other things, material weaknesses in our internal controls, violate our indebtedness covenants, miss an SEC reporting deadline or otherwise fail to comply with an applicable law or regulation.
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Implementing any appropriate changes to our internal controls may require specific compliance training, entail substantial costs in order to modify our existing accounting systems or those of the companies that we acquire, and take a material period of time to complete. However, such changes may not be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and could harm our ability to operate our business. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. Any failure to maintain effective internal controls over financial reporting, or any investor perception that our internal controls are inadequate or that we are unable to produce accurate financial statements on a timely, consistent basis, may result in a loss of investor confidence in our financial reports and may adversely affect our stock price. Any failure to maintain effective internal controls over financial reporting or to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and applicable SEC rules could also potentially subject us to sanctions or investigations by the SEC, Nasdaq or other regulatory authorities.

Debt Financing Risks

We have a significant amount of indebtedness, and our significant indebtedness could adversely affect our business, financial condition and results of operations.

We have $574.7 million of indebtedness as of December 31, 2023, which includes a significant amount of indebtedness under our 2023 Amended Credit Agreement (as defined herein).In addition, we may be able to incur a significant amount of additional indebtedness, subject to the terms and restrictions of our 2023 Amended Credit Agreement. Our indebtedness could have significant consequences on our future operations, including:

•events of default if we fail to comply with the financial and other covenants contained in the 2023 Amended Credit Agreement and/or other agreements governing our debt instruments, which could result in all of the debt becoming immediately due and payable or require us to negotiate an amendment to financial or other covenants that could cause us to incur additional fees and expenses;
•reducing the availability of our cash flow to fund working capital, capital expenditures, investments, acquisitions and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes;
•limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industries in which we operate, and the overall economy;
•limiting our ability to buy back common stock or pay dividends;
•placing us at a competitive disadvantage compared to any of our competitors that have less debt or are less leveraged; and
•increasing our vulnerability to the impact of adverse economic and industry conditions.

Our ability to meet our payment and other obligations under our debt instruments will depend on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors as well as other factors that are beyond our control. We cannot assure that we will generate cash flow from operations, or that future borrowings will be available to us, in an amount sufficient to enable us to meet our indebtedness obligations and to fund other liquidity needs.

Failure to adequately fund our operating and working capital needs through cash generated from operations and borrowings available under our 2023 Amended Credit Agreement could negatively impact our ability to invest in our business and maintain our capital structure.

Our business requires investment in working capital and fixed assets. We expect to fund these investments from cash generated from operations and borrowings available under our 2023 Amended Credit Agreement. Failure to generate sufficient cash flow from operations or from our 2023 Amended Credit Agreement could cause us to have insufficient funds to operate our business. Adequate funds may not be available when needed or may not be available on favorable terms.

Our business, financial condition and operating results could be materially adversely affected if we failed to meet the covenant requirements of our 2023 Amended Credit Agreement.

Our 2023 Amended Credit Agreement contains financial and other restrictive covenants. These covenants could
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adversely affect us by limiting our financial and operating flexibility as well as our ability to plan for and react to market conditions and to meet our capital needs. Failure to meet these covenant requirements could lead to higher financing costs and increased restrictions, reduce or eliminate our ability to borrow funds, result in events of default and accelerate the date on which our indebtedness must be repaid.

If we require more liquidity than is available to us under our 2023 Amended Credit Agreement, we may need to raise additional funds through debt or equity offerings which may not be available when needed or may not be available on terms favorable to us. Should funding be insufficient at any time in the future, we may be unable to develop or enhance our products or services, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations.

Government efforts to combat inflation, along with other interest rate pressures, could lead to higher financing costs.

Inflation has risen on a global basis, the United States has been experiencing historically high levels of inflation, and government entities have taken various actions to combat inflation, such as raising interest rate benchmarks. Government entities may continue their efforts, or implement additional efforts, to combat inflation, which could include among other things continuing to raise interest rate benchmarks and/or maintaining interest rate benchmarks at elevated levels. Such government efforts, along with other interest rate pressures, could lead to higher financing costs and have material adverse effect on our business, financial condition and results of operations.

Common Stock Risks

The market price of our common stock may decline.

The price of our common stock could decrease if our financial performance is inadequate or does not meet investors' expectations, if there is deterioration in the overall market for equities, if large amounts of shares are sold in the market, if there is index trading, or if investors have concerns that our business, financial condition, results of operations and capital requirements are negatively impacted by an economic downturn or any other adverse development.

Entities affiliated with LKCM and J. Bryan King beneficially own a significant majority of the outstanding DSG common stock and, therefore, have significant influence over our Company, which could delay or deter a change in control or other business combination or otherwise cause us to take actions with which you may disagree.

Based on a Schedule 13D filed with the SEC by LKCM and various other persons and entities (as amended through December 27, 2023), entities affiliated with LKCM beneficially owned in the aggregate approximately 36.4 million shares of DSG common stock as of December 26, 2023, representing approximately 77.8% of the outstanding shares of DSG common stock as of December 31, 2023. J. Bryan King, Chairman and Chief Executive Officer of the Company, is a Principal of LKCM. In addition, M. Bradley Wallace, who became a director of the Company upon his election at the Company’s 2023 annual stockholders meeting on May 19, 2023, is a Founding Partner of LKCM Headwater Investments, the private capital investment group of LKCM As a result, LKCM has significant influence over the outcome of matters requiring a stockholder vote, including the election of directors and the approval of other significant matters, and LKCM’s interests may not align with the interests of other stockholders. This concentration of ownership could also have the effect of delaying or preventing a change of control or other business combination that might be beneficial to our stockholders.

In addition, as a result of this concentrated ownership interest of DSG common stock, DSG believes that it qualifies as a “controlled company.” Under Nasdaq Listing Rules, a listed company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and, accordingly, DSG believes that, if it so desired, it would be generally exempt from the requirements of Rule 5605(b), (d) and (e) of the Nasdaq Listing Rules that among other things would otherwise require DSG to have:

•a majority of the DSG Board of Directors comprised of independent directors;
•a compensation committee comprised solely of independent directors; and
•director nominees be selected or recommended to the DSG Board of Directors for selection, either by (1) DSG's independent directors constituting a majority of the DSG Board of Directors’ independent directors in a vote in which only independent directors participate or (2) a nominating committee comprised solely of independent directors.

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Entities affiliated with LKCM beneficially own a significant number of shares of DSG common stock, and any sales of any such shares or the possibility of any such sales could have a negative effect on the price of DSG common stock.

Entities affiliated with LKCM beneficially own a significant number of shares of DSG common stock.In accordance with the Merger Agreements, DSG granted to certain entities affiliated with LKCM certain registration rights with respect to the shares of DSG common stock that DSG issued to those entities in connection with the Mergers. Any sales of any of the shares of DSG common stock held by any entities affiliated with LKCM (whether those shares were acquired by those entities in connection with the Mergers or in other transactions), or the anticipation of the possibility of any such sales, could create downward pressure on the market price of DSG common stock.

Legal and Regulatory Risks

A violation of federal, state or local environmental protection regulations could lead to significant penalties and fines or other remediation costs.

Our product offerings include a wide variety of industrial chemicals and other products which are subject to a multitude of federal, state and local regulations. These environmental protection laws change frequently and affect the composition, handling, transportation, storage and disposal of these products. Failure to comply with these regulations could lead to severe penalties and fines for each violation.

Additionally, a facility we own in Decatur, Alabama, was found to contain hazardous substances in the soil and groundwater as a result of historical operations prior to our ownership. We retained an environmental consulting firm to further investigate the contamination, including measurement and monitoring of the site. The Company concluded that further remediation was required, and accordingly, has made an accrual for the estimated cost of this environmental matter. A remediation plan was approved by the Alabama Department of Environmental Management and the remediation of the affected area is ongoing. Additional procedures may be required that could negatively impact our business, financial condition and results of operations.

Our results of operations could be affected by changes in taxation.

We are subject to income taxation at federal and state levels in the United States and to income taxation in numerous non-U.S. jurisdictions. Our results of operations could be adversely affected by changes in the Company’s effective tax rate as a result of changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets, audits by taxing authorities or changes in tax laws, regulations and their interpretation. From time-to-time changes in tax laws or regulations may be proposed or enacted that could adversely affect our overall tax liability. In addition, the Organization for Economic Co-operation and Development (“OECD”), which represents a coalition of member countries, has recommended fundamental tax reform affecting the taxation of multinational corporations, including the Base Erosion and Profit Shifting (“BEPS”) project, which in part aims to address international corporate tax avoidance. On December 20, 2021, the OECD released Pillar Two Model Rules defining the global minimum tax rules, which contemplate a 15% minimum tax rate. The OECD continues to release additional guidance on these rules and the framework calls for law enactment by OECD and G20 members to take effect in 2024 or 2025. However, the detail of the proposals is subject to change and the impact on the Company will need to be determined by reference to the final rules. The Company is continuing to monitor the potential impact of the Pillar Two proposals and developments on our consolidated financial statements and related disclosures, including eligibility for any transitional safe harbor rules. As of December 31, 2023, among the jurisdictions where the Company operates, only the U.K. has enacted legislation adopting the Pillar Two Rules, effective in fiscal 2025. Changes in applicable tax laws and regulations could affect our ability to realize our deferred tax assets, which could adversely affect our results of operations.

Our international operations subject us to additional legal and regulatory regimes.

TestEquity has business operations and/or sales in a number of foreign countries, including Canada, Mexico, Germany and the United Kingdom. Gexpro Services has business operations and/or sales in a number of foreign countries, including Hungary and China. Lawson has business operations in Canada. Compliance with diverse legal and regulatory requirements, including in connection with the movement or repatriation of cash, may be costly and time-consuming and require significant resources. Violations could result in significant fines or monetary damages, sanctions, prohibitions or restrictions on doing business and damage to our reputation. In addition, operating in foreign countries requires us to manage the potential conflicts between locally accepted business practices in any given jurisdiction and our obligations to comply with laws and
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regulations with respect to such jurisdictions, including anti-corruption laws or regulations applicable to DSG, such as the U.S. Foreign Corrupt Practices Act (the “FCPA”) and the UK Bribery Act 2010 (the “UKBA”). The U.S., U.K. and other foreign agencies and authorities have a broad range of civil and criminal penalties they may seek to impose against companies for violations of export controls, the FCPA, the UKBA, and other laws, rules, sanctions, embargoes and regulations, including those established by the Office of Foreign Assets Control. Any violation of these legal requirements, even if prohibited by our policies, procedures and controls, could subject us to criminal or civil enforcement actions or penalties for non-compliance or otherwise have an adverse effect on our business and reputation.

As a result of the Mergers, DSG’s ability to use its net operating losses and certain other tax attributes generated prior to the Mergers may be subject to limitations.

At December 31, 2023, the Company had $21.4 million of U.S. federal net operating loss carryforwards which are subject to expiration beginning in 2027 and $53.5 million of various state net operating loss carryforwards which expire at varying dates between 2024 and 2035. As a result of the Mergers, DSG’s ability to use its net operating losses and certain other tax attributes generated prior to the Mergers may be subject to limitations, which may adversely impact on our future tax liability and cash flows.

Public Health Emergencies Risks

Public health emergencies, whether domestic or international, such as the COVID-19 pandemic, may materially adversely affect our business strategy, financial condition or results of operations.

Pandemics, epidemics or disease outbreaks in the U.S. or globally, including new variants of COVID-19, may have a material adverse effect on our business strategy, financial condition or results of operations, as well as on our employees, suppliers, customers, and the general economy. The full effect and estimated length of these disruptions could be difficult to predict by the Company given such an event is affected by a number of factors, many of which could be outside of our control. For example, the COVID-19 pandemic resulted in lost revenue to our Company, limited our ability to source high demand product, limited our sales force to perform certain functions due to state or federal stay-at-home orders, resulted in a slow-down of customer demand for our products and limited the ability of some customers to pay us on a timely basis. 

TestEquity Merger and Gexpro Services Merger Risks

We are subject to business uncertainties as a result of the Mergers that could materially and adversely affect our businesses.

Uncertainty about the effect of the Mergers on employees, customers, suppliers and others having business relationships with us may have a material and adverse effect on our businesses. These uncertainties may impair our ability to attract, retain and motivate key personnel for a period of time after the closing of the Mergers. These uncertainties could also cause our customers, suppliers and other contractors to change or sever existing business relationships with us. Employee retention and recruitment may be challenging for the combined company as existing employees and prospective employees may experience uncertainty about their future roles with the combined company. Furthermore, no assurance can be given that after the Mergers we will be able to attract or retain key management personnel or other key employees to the same extent that legacy Lawson, TestEquity and Gexpro Services had been able to attract or retain their own employees. The departure of existing key employees or the failure of potential key employees to accept employment with the combined company, despite our retention and recruiting efforts, could have a material adverse impact on our business, financial condition and operating results.

Litigation relating to the Mergers could result in the payment of damages following the closing of the Mergers.

DSG and members of the DSG Board of Directors currently are, and may in the future be, parties, among others, to litigation related to the Merger Agreements and the Mergers. Among other remedies, the stockholders in the pending litigation seek, and other stockholders could seek, monetary damages. The outcome of any legal proceedings are difficult to predict and any such lawsuits could result in substantial costs to us. The existence of litigation relating to the Mergers may also be costly and distracting to management. Further, the resources and costs to defend or settle any lawsuit or claim may adversely affect our business, financial condition, results of operations and cash flows. See Note 15 – Commitments and Contingencies to our consolidated financial statements, included in Item 8. Financial Statements and Supplementary Data, for a description of certain of our pending legal proceedings relating to the Mergers, which are incorporated herein by reference.
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General Risks

Our results of operations may be adversely impacted by a downturn in the economy or in certain sectors of the economy.

Any decline or uncertainty in the strength of the economy may lead to a decrease in customer spending and may cause certain customers to cancel or delay placing orders. Some of our customers may file for bankruptcy protection, preventing us from collecting on accounts receivable and may result in our stocking excess inventory. Contractions in the credit markets may also cause some of our customers to experience difficulties in obtaining financing, leading to lower sales, delays in the collection of receivables and result in an increase in bad debt expense.

Adverse economic conditions could also affect our key suppliers and contractors. This could lead us to incur additional expenses or result in delays in shipping products to our customers. Economic uncertainty can make it difficult to accurately predict future order activity and affect our ability to effectively manage inventory levels. There are no assurances that we would be able to establish alternative financing or obtain financing with terms similar to our existing financing arrangements, including our credit agreement.

Changes in energy costs, tariffs, transportation costs and the cost of raw materials used in our products, and other inflationary pressures, could impact our cost of goods and distribution and occupancy expenses, which may result in lower operating margins.

Increases in the cost of raw materials used in our products (e.g., steel, brass, copper), quotas imposed on any cross border supplies within our businesses, increases in tariffs, increases in natural gas, electricity and other energy costs and increases in freight and other costs necessary to produce and transport our products, as well as other inflationary pressures, will raise the production costs of our vendors. Those vendors have typically looked to pass the higher costs along to us through price increases. If we are unable to fully pass such increased prices and costs through to our customers or to modify our activities, the impact would have an adverse effect on our operating profit margins and financial condition. On the other hand, a decrease in oil prices may result in weaker demand from oil and gas customers in the future, resulting in lower net sales. Changes in trade policies could affect our sourcing of product and ability to secure sufficient product and/or impact the cost or price of our products, with potentially negative impacts on our reported gross profits and results of operations.

Supply chain constraints, inflationary pressure and labor shortages could impact our cost of goods and other costs and expenses, which may result in lower gross profit margins and/or otherwise materially adversely affect our business, financial condition and results of operations.

Our businesses have been and may continue to be impacted by supply chain constraints, resulting in inflationary pressure on material costs, longer lead times, port congestion, and increased freight costs. This could result in challenges in acquiring and receiving inventory in a timely fashion and fulfilling customer orders. In addition, we have been and may continue to be impacted by labor shortages. This could result in challenges in fulfilling customer orders and can have a negative impact on our operating results as we may be required to utilize higher-cost temporary labor. We have also experienced and continue to experience inflationary pressure in other areas that adversely impact our cost of goods sold and other costs and expenses. While we instituted various price increases during 2022 and 2023 in response to rising supplier costs, as well as increased transportation and labor costs, there can be no assurance that future cost increases can be partially or fully passed on to customers, or that the timing of such sales price increases will match our supplier cost increases. As a result, we are unable to predict the impact of these constraints on our business, financial condition and results of operations.

The Company is exposed to the risk of foreign currency changes.

A number of our subsidiaries are located and operate outside the United States, and each uses the currency in such foreign country as its functional currency. Operating results denominated in foreign currencies are translated into U.S. dollars when consolidated into our financial statements. Therefore, we are exposed to market risk relating to the fluctuation of value of such foreign currencies (including the Canadian dollar, Mexican peso, British pound sterling, the Euro, Danish krone, Brazilian real, Chinese renminbi, and Turkish lira) relative to the U.S. dollar that could adversely affect our financial condition and operating results.

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In addition, the revolving credit facility under our 2023 Amended Credit Agreement is available to be drawn in U.S. dollars, Canadian dollars and any other additional currencies that may be agreed between us and our lenders.Any borrowings in Canadian dollars or any other foreign currency would expose us to market risk relating to the change in the value of such foreign currency in relation to the U.S. dollar.



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ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 1C. CYBERSECURITY.

Risk Management & Strategy

We are focused on addressing the growing threat of cybersecurity risks that we face in today’s global business environment and have identified cybersecurity as an important enterprise risk. Our cybersecurity risk management program is part of our overall enterprise risk management program, and is focused on identifying, assessing, managing, and remediating material risks from cybersecurity incidents. We rely on risk-based security controls, including access limitations and contractual requirements on third-party service providers, as part of our overall approach of protecting the integrity, availability and confidentiality of our important systems and information. We have an established cyber incident response plan to respond to cyber incidents.

We continue to improve our cybersecurity program and processes by investing in preventative measures. We engage consultants and third-party service providers in connection with our cybersecurity risk testing and assessment. These third-party service providers assist us in evaluating our cybersecurity program, provide support for threat monitoring and detection, and scan for vulnerabilities and other cybersecurity events which may pose a significant risk to the Company. We also engage in cybersecurity training, with the employees of certain of our operating companies undergoing compulsory training that enables them to detect and report malware, ransomware and other malicious software or social engineering attempts that may compromise the Company’s information technology systems, and those employees are routinely assessed on this training. Employees are also generally required to complete compulsory training covering the handling of sensitive data. As the cyber landscape evolves, both in our technology systems and in the broader context of the internet and expanding connectivity, management continually updates its cybersecurity approach as part of its effort to safeguard the Company’s sensitive information and assets.

We have not experienced any cybersecurity incidents in the last two years, including as a result of the Cyber Incident, that have materially affected the business strategy, results of operations, or financial condition of the Company. For more information regarding how cybersecurity threats could materially affect our business strategy, results of operations or financial condition, see “Cyber-attacks or other information security incidents could have a material adverse effect on our business strategy, results of operations or financial condition and subject us to additional legal costs.” in Item 1A. Risk Factors.

Corporate Governance

Our Board of Directors has overall responsibility for risk oversight and has delegated the oversight of risks associated with cybersecurity to the Audit Committee. The Audit Committee reports to the Board on our cybersecurity risk management practices and performance, generally on a quarterly basis. The Audit Committee receives reports from senior members of management, including from each of our Chief Information Officers (“CIOs”) (which include the CIO of each of our principal operating companies: Lawson, TestEquity and Gexpro Services), and the internal audit department regarding the cybersecurity risk management program. Among other things, these reports have focused on the following:

•recent cyber risk and cybersecurity developments;
•cyber risk governance and oversight;
•assessments by third-party experts;
•key cyber risk metrics and activities; and
•major projects and initiatives.

We have also established a governance structure under each of the CIOs that oversee investments in systems, resources, and processes as part of the continued maturity of our cybersecurity posture. Our CIOs have collectively over seventy years of service in various roles in the cybersecurity and information technology areas, including over forty years in their current roles or within the industry.

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ITEM 2. PROPERTIES.

Our principal executive office is located in Fort Worth, Texas. As of December 31, 2023, we owned or leased multiple properties in the United States and abroad, including office spaces, distribution centers, warehouses and branch retail locations.

Owned and leased properties by reportable segment as of December 31, 2023 are summarized below.
Number of Properties
LawsonTestEquityGexpro Services
All Other(1)
Offices1 7 3 1 
Distribution centers/warehouses6 48 28 1 
Branch locations— — — 14 
Other (2)
1 — — — 
Total8 55 31 16 
(1)Includes our principal executive office and properties used by the Bolt Supply House ("Bolt"), a non-reportable segment.
(2)In connection with the sale of a discontinued business, we have agreed to lease the facility prior to the sale of the property.

While we believe that our facilities are adequate to meet our current needs, we will continue to assess the location and operation of our facilities to determine whether they meet the strategic needs of our business.

ITEM 3. LEGAL PROCEEDINGS.

See Note 15 – Commitments and Contingencies to our consolidated financial statements, included in Item 8. Financial Statements and Supplementary Data, which is incorporated herein by reference, for a description of certain of our pending legal proceedings, which are incorporated herein by reference. In addition, the Company is involved in legal actions that arise in the ordinary course of business.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Stock Price Data

The DSG common stock is traded on the Nasdaq Global Select Market under the symbol of DSGR. On February 29, 2024, the closing sales price of our common stock was $31.41 and the number of stockholders of record was 281. We did not declare or pay dividends in either 2023 or 2022 and the Company currently has no plans to declare or pay dividends in the foreseeable future. Dividends are subject to certain restrictions based on terms detailed in our 2023 Amended Credit Agreement. Information about our equity compensation plans may be found in Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, of this report which is hereby incorporated by reference.

Repurchases of Equity Securities

The Board of Directors previously authorized a stock repurchase program that permits the Company to repurchase DSG common stock from time to time in open market transactions, privately negotiated transactions or by other methods. In December 2023 the Board of Directors increased the repurchase program by $25.0 million, bringing the total authorized to $37.5 million. We had $29.0 million of remaining availability under the stock repurchase program as of December 31, 2023. The stock repurchase program does not have an expiration date.

The following table summarizes repurchases of DSG common stock for the three months ended December 31, 2023 under the repurchase program described above and excludes shares withheld from employees to satisfy tax withholding requirements on option exercises and other equity-based transactions.
PeriodTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsApproximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
October 1 through October 31, 2023— $— — $7,572,000 
November 1 through November 30, 2023116,430 26.03 116,430 4,541,000 
December 1 through December 31, 202322,295 26.37 22,295 28,953,000 
Total138,725 138,725 

ITEM 6. [RESERVED]

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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of DSG's financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included in this Annual Report on Form 10-K, the audited consolidated financial statements and accompanying notes included in DSG's Annual Report on Form 10-K filed for the year ended December 31, 2022 and the Lawson Products, Inc. unaudited condensed consolidated financial statements and accompanying notes included in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022.

References to “DSG”, the “Company”, "we", "our" or "us" refer to Distribution Solutions Group, Inc. and all entities consolidated in the accompanying consolidated financial statements.

Overview

Organization and Structure

DSG is a multi-platform specialty distribution company providing high touch, value-added distribution solutions to the maintenance, repair and operations (“MRO”), the original equipment manufacturer (“OEM”) and the industrial technologies markets. The Mergers that were consummated on April 1, 2022 resulted in the combination of Lawson, TestEquity and Gexpro Services. For a description of the Mergers, refer to Item 1. Business and Note 1 – Nature of Operations and Basis of Presentation in Item 8. Financial Statements and Supplementary Data.

We manage and report our operating results through three reportable segments: Lawson, TestEquity and Gexpro Services. A summary of our segments is presented below. For additional details about our segments, see Item 1. Business and Note 14 – Segment Information in Item 8. Financial Statements and Supplementary Data.

Lawson is a distributor of specialty products and services to the industrial, commercial, institutional and government MRO market.

TestEquity is a distributor of test and measurement equipment and solutions, industrial and electronic production supplies, vendor managed inventory programs, and converting, fabrication and adhesive solutions from its leading manufacturer partners supporting the aerospace and defense, wireless and communication, semiconductors, industrial electronics and automotive, and electronics manufacturing industries.

Gexpro Services is a global supply chain solutions provider, specializing in the development of mission critical production line management, aftermarket and field installation programs.

In addition to these three reportable segments, we have an “All Other” category which includes unallocated DSG holding company costs that are not directly attributable to the ongoing operating activities of our reportable segments and the results of a non-reportable segment.

Recent Events

HIS Company, Inc. Acquisition

On June 8, 2023, DSG acquired all of the issued and outstanding capital stock of Hisco, a distributor of specialty products serving industrial technology applications, pursuant to the Purchase Agreement dated March 30, 2023. The total purchase consideration exchanged for the Hisco Transaction was $267.3 million, net of cash acquired of $12.2 million, with a potential additional earn-out payment subject to Hisco achieving certain performance targets. DSG will also pay $37.5 million in cash or DSG common stock in retention bonuses to certain Hisco employees that remain employed with Hisco or its affiliates for at least twelve months after the closing of the Hisco Transaction.

In connection with the Hisco Transaction, DSG combined the operations of TestEquity and Hisco, creating one of the largest suppliers serving the electronics design, production, and repair industries. Accordingly, Hisco results are included in the TestEquity reportable segment after the date of acquisition.

DSG funded the Hisco Transaction with borrowings under its 2023 Amended Credit Agreement and proceeds raised from the Rights Offering, both discussed below. Refer to Note 3 – Business Acquisitions for further details about the Hisco Transaction.
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Debt Amendment

On June 8, 2023, the Company entered into the First Amendment to Amended and Restated Credit Agreement (the “First Amendment”), which amended the Amended and Restated Credit Agreement, dated as of April 1, 2022 (as amended by the First Amendment, the “2023 Amended Credit Agreement”), by and among the Company, certain subsidiaries of the Company as borrowers or guarantors, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent. The First Amendment provides for a $305 million incremental term loan. Refer to Note 9 – Debt for additional information about the 2023 Amended Credit Agreement.

Rights Offering

On May 30, 2023, the Company raised gross proceeds of approximately $100 million pursuant to a Rights Offering of transferable subscription rights to holders of DSG common stock as of the close of business on May 1, 2023. Refer to Note 11 – Stockholders' Equity for additional information about the Rights Offering. The Company incurred transaction costs related to the issuance of DSG common stock for the Rights Offering of $1.5 million, which were recorded against Capital in excess of par value in the Consolidated Balance Sheets.

Sales Drivers

DSG believes that the Purchasing Managers Index ("PMI") published by the Institute for Supply Management is an indicative measure of the relative strength of the economic environment of the industry in which it operates. The PMI is a composite index of economic activity in the U.S. manufacturing sector. A measure of the PMI index above 50 is generally viewed as indicating an expansion of the manufacturing sector while a measure below 50 is generally viewed as representing a contraction. The average monthly PMI was 47.1 in the year ended December 31, 2023 compared to 53.5 in the year ended December 31, 2022.

Lawson Sales Drivers

The North American MRO market is highly fragmented. Lawson competes for business with several national distributors as well as a large number of regional and local distributors. The MRO business is impacted by the overall strength of the manufacturing sector of the U.S. economy.

Lawson's revenue is also influenced by the number of sales representatives and their productivity. Lawson plans to continue concentrating its efforts on increasing the productivity and size of its sales team. Additionally, Lawson drives revenue through the expansion of products sold to existing customers as well as attracting new customers and additional ship-to locations. Lawson also is expanding its inside sales team to help drive field sales representative productivity and also utilizes an e-commerce site to generate sales.

TestEquity Sales Drivers

Across the test and measurement, industrial and electronic production supplies businesses, the North American market is highly fragmented with competitors ranging from large global distributors to national and regional distributors.

Through the Hisco Transaction, TestEquity expanded its product offerings, including adhesives, chemicals and tapes as well as specialty materials such as electrostatic discharge, thermal management materials and static shielding bags. Hisco operates in 38 locations across North America, including its Precision Converting facilities that provide value-added fabrication and its Adhesive Materials Group that provides an array of custom repackaging solutions. Hisco also offers vendor-managed inventory and Radio Frequency Identification ("RFID") programs with specialized warehousing for chemical management, logistics services and cold storage.

Gexpro Services Sales Drivers

The global supply chain solutions market is highly fragmented across Gexpro Services' key vertical segments. Gexpro Services’ competitors range from large global distributors and manufacturers to small regional domestic distributors and
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manufacturers. Gexpro Services' revenue is influenced by our OEMs’ production schedules, new product introduction launches, and service project needs.

Gexpro Services' strategy is to increase revenue through increasing wallet share with existing customers, customer-led geographic expansion, new customer development in its six key vertical markets and leveraging its portfolio of recent acquisitions to expand its installation and aftermarket services.

Supply Chain Disruptions

We continue to be affected by rising supplier costs caused by inflation and increased transportation and labor costs. We have instituted various price increases during 2022 and 2023 in response to rising supplier costs, as well as increased transportation and labor costs in order to manage our gross profit margins.

Cyber Incident Litigation

On February 10, 2022, DSG disclosed that Lawson Products' computer network was the subject of a cyber incident potentially involving unauthorized access to certain confidential information (the “Cyber Incident”). DSG engaged a cybersecurity forensics firm to assist in the investigation of the incident and to assist in securing its computer network.

Because of the nature of the information that may have been compromised, DSG was required to notify the parties whose information was potentially compromised of the incident as well as various governmental agencies and has taken other actions, such as offering credit monitoring services. At December 31, 2023, DSG had not incurred material costs as a result of the Cyber Incident. On April 27,4, 2023, a putative class action lawsuit was filed against DSG related to the Cyber Incident (the “Cyber Incident Suit”). For more information about the Cyber Incident Suit, refer to Note 15 – Commitments and Contingencies within Item 8. Financial Statements and Supplementary Data.

Factors Affecting Comparability to Prior Periods

Our results of operations for the year ended December 31, 2023 are not directly comparable to prior results for the year ended December 31, 2022 due to the Mergers that were completed on April 1, 2022. The Mergers were accounted for as a reverse merger under the acquisition method of accounting in accordance with the accounting guidance for reverse acquisitions as provided in Accounting Standards Codification 805, Business Combinations ("ASC 805"). Under this guidance, TestEquity and Gexpro Services were treated as a combined entity as the accounting acquirer for financial reporting purposes, and DSG was identified as the accounting acquiree. This determination was primarily made as TestEquity and Gexpro Services were under the common control of an entity that owned a majority of the voting rights of the combined entity, and therefore, only DSG experienced a change in control. Accordingly, the consolidated financial statements for the year ended December 31, 2022 reflect the results of operations of TestEquity and Gexpro Services on a consolidated basis for the full year, and the results of operations of DSG's legacy Lawson business are only included subsequent to the April 1, 2022 Merger Date. The combined operations of all three entities are included in the consolidated financial statements for the full year ended December 31, 2023.

Non-GAAP Financial Measures

The Company's management believes that certain non-GAAP financial measures may provide users of this financial information with additional meaningful comparisons between current results and results in prior operating periods. Management believes that these non-GAAP financial measures can provide additional meaningful reflection of underlying trends of the business because they provide a comparison of historical information that excludes certain infrequently occurring, seasonal or non-operational items that impact the overall comparability. These non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with GAAP.

Non-GAAP Adjusted EBITDA

Management believes Adjusted EBITDA is an important measure of the Company's operating performance and may provide investors with additional meaningful comparisons between current results and results in prior operating periods because Adjusted EBITDA excludes certain non-operational or non-cash items whose fluctuations from period to period do not necessarily correspond to changes in the operating performance of our business and consequently may impact the overall
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comparability from period to period. We define Adjusted EBITDA as operating income plus depreciation and amortization, stock-based compensation, severance and acquisition related retention costs, costs related to the execution and integration of the Mergers and other acquisitions, inventory net realizable value adjustments, amortization of fair value step-up resulting from the Mergers and other acquisitions and other non-recurring items. Management uses operating income and Adjusted EBITDA to evaluate the performance of its reportable segments. See Note 14 – Segment Information of our consolidated financial statements within Item 8. Financial Statements and Supplementary Data for additional information about our reportable segments.

The following table provides a reconciliation of Net income to Adjusted EBITDA on a consolidated basis and Operating income to Adjusted EBITDA by segment for the years ended December 31, 2023 and 2022. A reconciliation of Net income to Adjusted EBITDA by segment is not provided because management does not determine or review net income at the segment level and does not allocate non-operating costs and expenses to its segments, such as income taxes, interest expense, and various other non-operating income and expense.

Reconciliation of Net Income (Loss) to Non-GAAP Adjusted EBITDA (Unaudited)
Year Ended December 31, 2023
(in thousands)LawsonTestEquityGexpro ServicesAll OtherConsolidated
Net income (loss)$(8,967)
Income tax expense (benefit)6,960 
Other income (expense), net2,982 
Change in fair value of earnout liabilities(758)
Interest expense42,774 
Operating income (loss)$32,498 $(16,465)$27,000 $(42)$42,991 
Depreciation and amortization19,532 26,002 15,986 2,068 63,588 
Stock-based compensation(1)
7,940 — — — 7,940 
Severance and acquisition related retention expenses(2)
476 23,949 238 3 24,666 
Merger and acquisition related costs(3)
3,015 6,215 1,081 1,250 11,561 
Inventory step-up(5)
— 3,582 — — 3,582 
Other non-recurring(6)
202 — 886 1,620 2,708 
Adjusted EBITDA$63,663 $43,283 $45,191 $4,899 $157,036 
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Year Ended December 31, 2022
(in thousands)
Lawson(7)
TestEquityGexpro Services
All Other(7)
Consolidated
Net income (loss)$7,406 
Income tax expense (benefit)5,531 
Other income (expense), net670 
Change in fair value of earnout liabilities483 
Loss on extinguishment of debt3,395 
Interest expense24,301 
Operating income (loss)$6,536 $11,375 $21,291 $2,584 $41,786 
Depreciation and amortization10,594 17,480 15,175 1,937 45,186 
Stock-based compensation(1)
2,448 — — — 2,448 
Severance and acquisition related retention expenses(2)
1,429 1,095 266 6 2,796 
Merger and acquisition related costs(3)
4,698 4,786 5,957 — 15,441 
Inventory net realizable value adjustment(4)
1,737 — — — 1,737 
Inventory step-up(5)
1,943 — 163 761 2,867 
Other non-recurring(6)
1,199 — 354 44 1,597 
Adjusted EBITDA$30,584 $34,736 $43,206 $5,332 $113,858 
(1)    Expense (benefit) primarily for stock-based compensation, of which a portion varies with the Company’s stock price.
(2)    Includes severance expense from actions taken in 2023 and 2022 not related to a formal restructuring plan and acquisition related retention expenses for the Hisco Transaction.
(3)    Transaction and integration costs related to the Mergers and other acquisitions.
(4)    Inventory net realizable value adjustment recorded to reduce inventory related to discontinued products where the anticipated net realizable value was lower than the cost reflected in our records.
(5)    Inventory fair value step-up adjustment for Lawson resulting from the reverse merger acquisition accounting and acquisition accounting for additional acquisitions completed by Gexpro Services or TestEquity.
(6)    Other non-recurring costs consist of non-capitalized deferred financing costs incurred in conjunction with the 2023 Amended Credit Agreement, certain non-recurring strategic projects and other non-recurring items.
(7)    Includes the operating results of Lawson and All Other subsequent, but not prior, to the April 1, 2022 Merger Date in accordance with GAAP accounting guidance for reverse acquisitions.

Supplemental Information - Lawson Pro Forma Operating Income and Non-GAAP Adjusted EBITDA

For management to discuss Lawson's operating results on a comparable basis, Lawson's GAAP results of operations were adjusted to include Lawson's historical pre-merger components of operating income, prior to the April 1, 2022 Merger Date, along with pre-merger pro forma adjustments prepared under SEC Regulation S-X Article 11, in order to reflect the total operating activities attributable to Lawson for each period presented. Management believes this supplemental information provides the most meaningful basis of comparison for Lawson's operations, is more useful in identifying current business trends, and is important for the users of our financial statements in understanding Lawson's business. Refer to Note 1 – Nature of Operations and Basis of Presentation and Note 3 – Business Acquisitions within Item 8. Financial Statements and Supplementary Data for information about the Mergers.

This supplemental information may not reflect the actual results we would have achieved had the Mergers occurred at the beginning of 2022, and should not be viewed as a substitute for the results of operations presented in accordance with GAAP. Lawson's historical operating results prior to the Mergers were obtained from the unaudited condensed consolidated financial statements included in the Lawson Products, Inc. Quarterly Report on Form 10-Q filed for the quarterly period ended March 31, 2022. The pro forma adjustments were obtained from the unaudited pro forma condensed combined financial information included in DSG's Current Report on Form 8-K/A filed on August 24, 2023.

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Lawson Pro Forma Results - Calculation of Supplemental Information (Unaudited)
(in thousands)Year Ended December 31, 2023Year Ended December 31, 2022
Lawson Operating Income
GAAP Results(1)
GAAP Results(2)
Pre-Merger Results(3)
Pro-Forma Adjustments(4)
Pro Forma Results(5)
Revenue from external customers$468,379 $324,783 $104,902 $— $429,685 
Intersegment revenue332 — — — — 
Revenue468,711 324,783 104,902 — 429,685 
Cost of goods sold203,251 154,030 49,371 — 203,401 
Gross profit265,460 170,753 55,531 — 226,284 
Selling, general and administrative expenses232,962 164,217 44,435 4,086 212,738 
Operating income (loss)$32,498 $6,536 $11,096 $(4,086)$13,546 
Lawson Adjusted EBITDA(6)
$63,663 $30,584 $8,042 $38,626 
(1)    Operating income prepared in accordance with GAAP. No pre-merger or pro-forma adjustments were necessary because these results represent Lawson’s total operating activities for the full year ended December 31, 2023.
(2)    Operating income prepared in accordance with GAAP, which includes Lawson’s results of operations subsequent, but not prior, to the April 1, 2022 Merger Date. See Note 1 – Nature of Operations and Basis of Presentation and Note 3 – Business Acquisitions within Item 8. Financial Statements and Supplementary Data.
(3)    Lawson's results of operations for the three months ended March 31, 2022, which occurred prior to the April 1, 2022 Merger Date and were not included in the Company's GAAP operating results under reverse merger acquisition accounting.
(4)    Pro-forma adjustments include the incremental expense related to the fair value adjustment of share-based compensation awards of $1.9 million and the net impact of $2.2 million from the elimination of historical depreciation and amortization expense and recognition of new depreciation expense on the fair value of property, plant and equipment and amortization expense related to identifiable intangible assets.
(5)    Lawson's pro forma results of operations adjusted for comparability on a period-over-period basis. These results represent Lawson’s total operating activities for the year ended 2022, regardless of the Merger Date (that is, they reflect both pre- and post-Merger results of Lawson, including the pro forma adjustments related to the pre-Merger period).
(6)    Refer to the Non-GAAP Adjusted EBITDA section above for a reconciliation of operating income to Adjusted EBITDA.

Composition of Results of Operations

The following results of operations for the year ended December 31, 2023 include the combined operations of DSG. The following results of operations for the year ended December 31, 2022 include the accounts of the TestEquity and Gexpro Services combined entity, as the accounting acquirer, for the full year, and the results of DSG's legacy Lawson business have only been included for activity subsequent, and not prior, to the April 1, 2022 Merger Date.

Segment revenue and Operating income (loss) by reportable segment includes sales to external customers and sales transactions between our segments, referred to as intersegment revenue, and the impact of those intersegment revenue transactions on operating activities. Reconciliations of segment revenue and Operating income (loss) to our consolidated results of operations in the consolidated financial statements are provided in Note 14 – Segment Informationwithin Item 8. Financial Statements and Supplementary Data.
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RESULTS OF OPERATIONS FOR 2023 AS COMPARED TO 2022

Consolidated Results of Operations
Year Ended December 31,
20232022
(Dollars in thousands)Amount% of RevenueAmount% of Revenue
Revenue
Lawson(1)
$468,711 29.8 %$324,783 28.2 %
TestEquity641,768 40.9 %392,358 34.1 %
Gexpro Services405,733 25.8 %385,326 33.5 %
All Other(2)
55,890 3.6 %48,955 4.3 %
Intersegment revenue elimination(1,700)(0.1)%— — %
Total Revenue1,570,402 100.0 %1,151,422 100.0 %
Cost of goods sold
Lawson(1)
203,251 12.9 %154,030 13.4 %
TestEquity499,916 31.8 %302,980 26.3 %
Gexpro Services284,664 18.1 %272,462 23.7 %
All Other(2)
32,396 2.1 %31,052 2.7 %
Intersegment cost of goods sold elimination(1,700)(0.1)%— — %
Total Cost of goods sold1,018,527 64.9 %760,524 66.1 %
Gross profit551,875 35.1 %390,898 33.9 %
Selling, general and administrative expenses
Lawson(1)
232,962 14.8 %164,217 14.3 %
TestEquity158,317 10.1 %78,003 6.8 %
Gexpro Services94,069 6.0 %91,573 8.0 %
All Other(2)
23,536 1.5 %15,319 1.3 %
Total Selling, general and administrative expenses508,884 32.4 %349,112 30.3 %
Operating income (loss)42,991 2.7 %41,786 3.6 %
Interest expense(42,774)(2.7)%(24,301)(2.1)%
Loss on extinguishment of debt— — %(3,395)(0.3)%
Change in fair value of earnout liabilities758 — %(483)— %
Other income (expense), net(2,982)(0.2)%(670)(0.1)%
Income (loss) before income taxes(2,007)(0.1)%12,937 1.1 %
Income tax expense (benefit)6,960 0.4 %5,531 0.5 %
Net income (loss)$(8,967)(0.6)%$7,406 0.6 %
(1) Includes the operating results of Lawson subsequent, but not prior, to the April 1, 2022 Merger Date.
(2) Includes the operating results of All Other subsequent, but not prior, to the April 1, 2022 Merger Date.

Overview of Consolidated Results of Operations

Our consolidated results of operations include the financial impact of the Mergers that were completed on April 1, 2022 and the other acquisitions completed in 2023 and 2022. The increase in gross profit for 2023 compared to 2022 was primarily due to the inclusion of Lawson operations only subsequent, and not prior, to the Merger Date and the Hisco and other acquisitions completed in 2023 and 2022. Expenses for 2023 were impacted by the other acquisitions completed in 2023 and 2022.
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Refer to Results by Reportable Segment below for a complete discussion of our results of operations.

Results by Reportable Segment

Lawson Segment
Year Ended December 31,Change
(Dollars in thousands)20232022Amount%
Revenue from external customers$468,379 $324,783 $143,596 44.2 %
Intersegment revenue332 — 332 — %
Revenue$468,711 $324,783 $143,928 44.3 %
Cost of goods sold203,251 154,030 49,221 32.0 %
Gross profit265,460 170,753 94,707 55.5 %
Selling, general and administrative expenses232,962 164,217 68,745 41.9 %
Operating income (loss)$32,498 $6,536 $25,962 397.2 %
Gross profit margin56.6 %52.6 %
Adjusted EBITDA(1)
$63,663 $30,584 $33,079 108.2 %
(1)Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of operating income to Adjusted EBITDA.

Revenue and Gross Profit

Revenue increased $143.6 million, or 44.2%, to $468.7 million in 2023 compared to revenue of $324.8 million in the same period of 2022 primarily due to $125.3 million of revenue in the first quarter of 2023 with no comparable amount in 2022 due to the inclusion of Lawson operations beginning on the Merger Date and not including any Lawson operations prior to the Merger Date. The remaining increase was primarily driven by strengthening sales to Lawson's strategic and governmental customers and automotive end market customers from a combination of organic growth and the realization of price increases enacted throughout 2022 and 2023 to offset rising supplier costs.

Gross profit increased $94.7 million, or 55.5%, to $265.5 million in 2023 compared to gross profit of $170.8 million in the same period of 2022 primarily due to $70.9 million of gross profit in the first quarter of 2023 with no comparable amount in 2022 due to the inclusion of Lawson operations beginning on the Merger Date and not including any Lawson operations prior to the Merger Date. The remaining increase was primarily the result of increased sales volume, price increases and lower net freight expense and spreading operating expenses over a higher sales level. Lawson gross profit as a percent of revenue was 56.6% in 2023 compared to gross profit as a percent of revenue of 52.6% in the prior year period. The gross profit margin percentage improvement for 2023 was primarily the result of price increases, lower net freight expense and leveraging operating expenses over a higher sales base. Thegross profit margin percentage for the same period of 2022 was impacted by increased supplier costs from inflation and supply chain disruptions and a sales shift toward lower margin customers. Gross profit margin for 2022 was also impacted by an inventory charge of $1.7 million to reduce inventory related to discontinued products where the anticipated net realizable value was lower than the cost reflected in our records and the amortization of the fair value step-up of inventory of $1.9 million related to the Mergers.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of compensation and support for Lawson sales representatives as well as expenses to operate Lawson's distribution network and overhead expenses.

Selling, general and administrative expenses increased $68.7 million to $233.0 million in 2023 compared to Selling, general and administrative expenses of $164.2 million in the same period of 2022 primarily due to $62.7 million of Selling, general and administrative expenses in the first quarter of 2023 with no comparable amount in 2022 due to the inclusion of Lawson operations beginning on the Merger Date and not including any Lawson operations prior to the Merger Date.

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Adjusted EBITDA

During 2023, Lawson generated Adjusted EBITDA of $63.7 million, an increase of 108.2% or $33.1 million from the same period a year ago primarily due to $18.5 million of Adjusted EBITDA in the first quarter of 2023 with no comparable amount in 2022 due to the inclusion of Lawson operations beginning on the Merger Date and not including any Lawson operations prior to the Merger Date and increased revenue and gross profit margin partially offset by an increase in Selling, general and administrative expenses.

Supplemental Information

For management to discuss Lawson's operating results on a comparable basis, Lawson's GAAP results of operations were adjusted to include Lawson's historical pre-merger components of operating income, prior to the April 1, 2022 Merger Date, along with pre-merger pro forma adjustments prepared under SEC Regulation S-X Article 11, in order to reflect the total operating activities attributable to Lawson for each period presented. These pro forma results presented in the table below are referred to within this supplemental results of operations discussion as "pro forma".
Year Ended December 31,Change
(Dollars in thousands)2023
Pro Forma 2022(1)
Amount%
Revenue from external customers$468,379 $429,685 $38,694 9.1%
Intersegment revenue332 — 332 —%
Revenue$468,711 $429,685 $39,026 9.1%
Cost of goods sold203,251 203,401 (150)(0.1)%
Gross profit265,460 226,284 39,176 17.3%
Selling, general and administrative expenses232,962 212,738 20,224 9.7%
Operating income (loss)$32,498 $13,546 $18,952 107.5%
Gross profit margin56.6 %52.7 %
Adjusted EBITDA(2)
$63,663 $38,626 $25,037 64.8%
(1)For comparability purposes, Lawson's GAAP results of operations were adjusted to include the historical unaudited results of Lawson prior to the Merger Date and certain pro-forma adjustments including the incremental expense related to the fair value adjustment of share-based compensation awards and incremental depreciation and amortization expense related to the fair value adjustments of property, plant and equipment and identifiable intangible assets. Refer to the section Factors Affecting Comparability to Prior Periods and the section Supplemental Information - Lawson Pro Forma Operating Income and Non-GAAP Adjusted EBITDA for more information related to the calculation of adjusted amounts.
(2)Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of operating income to Adjusted EBITDA.

Revenue and Gross Profit

Revenue increased $39.0 million, or 9.1%, to $468.7 million in 2023 compared to pro forma revenue of $429.7 million in the same period of 2022. The increase was primarily driven by strengthening sales to Lawson's strategic and governmental customers of $25.2 million and automotive end market customers of $13.5 million from a combination of organic growth and the realization of price increases enacted throughout 2022 and 2023 to offset rising supplier costs.

Gross profit increased $39.2 million to $265.5 million in 2023 compared to pro forma gross profit of $226.3 million in the same period of 2022 primarily as a result of increased sales volume and price increases, which contributed to an increase in gross profit of $29.4 million, lower net freight expense of $2.9 million, lower expense for write-offs of obsolete and excess inventory of $3.2 million and spreading operating expenses over a higher sales level. Lawson gross profit as a percent of revenue was 56.6% in 2023 compared to pro forma gross profit as a percent of pro forma revenue of 52.7% in the prior year period. The gross profit margin percentage improvement for 2023 was primarily the result of price increases, lower net freight costs, lower expense for write-offs of obsolete and excess inventory and leveraging operating costs over a higher sales base. The pro forma gross profit margin percentage for the same period of 2022 was impacted by increased supplier costs from inflation and supply chain disruptions and a sales shift toward lower margin customers. Pro forma gross profit margin for 2022 was also impacted by an inventory charge of $1.7 million to reduce inventory related to discontinued products where
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the anticipated net realizable value was lower than the cost reflected in our records and the amortization of the fair value step-up of inventory of $1.9 million related to the Mergers.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of compensation and support for Lawson sales representatives as well as expenses to operate Lawson's distribution network and overhead expenses.

Selling, general and administrative expenses increased $20.2 million to $233.0 million in 2023 compared to pro forma Selling, general and administrative expenses of $212.7 million in the same period of 2022. The increase was primarily driven by additional depreciation and amortization of $9.2 million as a result of the fair value step-up adjustments related to the reverse merger acquisition accounting and higher stock-based compensation of $12.2 million due to expense of $7.9 million in 2023 and a benefit of $4.2 million realized in 2022, partially offset by lower acquisition related costs of $4.7 million in 2023 compared to the same period of 2022.
Adjusted EBITDA

During 2023, Lawson generated Adjusted EBITDA of $63.7 million, an increase of 64.8% or $25.0 million from the same period a year ago primarily driven by increased revenue and gross profit margin partially offset by an increase in Selling, general and administrative expenses.

TestEquity Segment
Year Ended December 31,Change
(Dollars in thousands)20232022Amount%
Revenue from external customers$641,643 $392,358 $249,285 63.5 %
Intersegment revenue125 — 125 — %
Revenue641,768 392,358 249,410 63.6 %
Cost of goods sold499,916 302,980 196,936 65.0 %
Gross profit141,852 89,378 52,474 58.7 %
Selling, general and administrative expenses158,317 78,003 80,314 103.0 %
Operating income (loss)$(16,465)$11,375 $(27,840)(244.7)%
Gross profit margin22.1 %22.8 %
Adjusted EBITDA(1)
$43,283 $34,736 $8,547 24.6 %
(1)Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of operating income (loss) to Adjusted EBITDA.

Revenue and Gross Profit

Revenue increased $249.4 million, or 63.6%, to $641.8 million in 2023 compared to $392.4 million in the same period in 2022. The increase was primarily driven by $273.4 million of revenue generated from acquisitions completed in 2023 and 2022 offset by a $24.0 million decline in legacy TestEquity revenue due to a slowdown in the test and measurement market, primarily caused by tightening of capital budgets in TestEquity's customer base and softening in the EPS end markets.

Gross profit increased $52.5 million to $141.9 million in 2023 compared to $89.4 million in the same period of 2022 primarily as a result of the inclusion of the acquisitions completed in 2023 and 2022, which generated $57.9 million of additional gross profit during 2023 offset by a decline in legacy TestEquity revenue. TestEquity gross profit as a percent of revenue decreased to 22.1% in 2023 compared to 22.8% in the prior year primarily due to the amortization of the fair value step-up of inventory of $3.6 million related to the Hisco Transaction and a shift in sales mix from the lower gross margin rates from the 2022 and 2023 acquisitions.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of compensation and support for TestEquity's sales representatives and expenses to operate TestEquity's distribution network and overhead expenses.

Selling, general and administrative expenses increased $80.3 million to $158.3 millionin 2023 compared to $78.0 million in the same period of 2022. Approximately $68.8 million of the increased expenses, including depreciation, was driven by the acquisitions completed in 2023 and 2022 of which $22.8 million was related to the Hisco retention bonuses. The remaining increase in Selling, general and administrative expenses of $11.5 million is primarily due to $4.6 million of additional amortization of intangible assets acquired through the Hisco acquisition, $1.4 million of higher acquisition related expenses and $5.5 million of higher expenses for health insurance, allowance for doubtful accounts and other professional services.

Adjusted EBITDA

During 2023, TestEquity generated Adjusted EBITDA of $43.3 million, an increase of $8.5 million from the same period a year ago with approximately $19.7 million driven by the acquisitions completed in 2023 and 2022 partially offset by $7.3 million due to lower gross profit margin on lower legacy TestEquity revenue and $3.9 million primarily due to higher expenses for health insurance, allowance for doubtful accounts and other professional services.

Gexpro Services Segment
Year Ended December 31,Change
(Dollars in thousands)20232022Amount%
Revenue from external customers$404,490 $385,326 $19,164 5.0 %
Intersegment revenue1,243 — 1,243 — %
Revenue405,733 385,326 20,407 5.3 %
Cost of goods sold284,664 272,462 12,202 4.5 %
Gross profit121,069 112,864 8,205 7.3 %
Selling, general and administrative expenses94,069 91,573 2,496 2.7 %
Operating income (loss)$27,000 $21,291 $5,709 26.8 %
Gross profit margin29.8 %29.3 %
Adjusted EBITDA(1)
$45,191 $43,206 $1,985 4.6 %
(1)Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of operating income to Adjusted EBITDA.

Revenue and Gross Profit

Revenue increased $20.4 million, or 5.3%, to $405.7 million in 2023 compared to $385.3 million in the same period of 2022. The increase was primarily driven by strengthening sales within Gexpro Services' Aerospace & Defense, Industrial Power, and Transportation end markets of $7.3 million, $17.7 million and $4.9 million, respectively, partially offset by continued softness in the Technology/Semiconductor end markets of $24.5 million. The increase also came from a combination of organic growth and the realization of price increases enacted throughout 2022 and 2023 to offset rising supplier costs.

Gross profit increased $8.2 million to $121.1 million in 2023 compared to $112.9 million in the same period of 2022 primarily as a result of increased sales volume and price increases and lower net freight expense of $6.1 million partially offset by an increase in expense for write-offs for obsolete and excess inventory of $3.6 million and higher freight capitalization of $0.5 million. Gexpro Services gross profit as a percent of revenue was 29.8% in 2023 compared to 29.3% in the prior year period. The gross profit margin percentage improvement for 2023 was primarily the result of price increases and lower net freight costs partially offset by higher expense for write-offs of obsolete and excess inventory.


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Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of sales and marketing expenses primarily relating to compensation, costs associated with supporting Gexpro Services’ service facilities, overhead expenses within finance, legal, human resources and information technology, and other costs required to operate Gexpro Services' business and service customers.

Selling, general, and administrative expenses increased $2.5 million to $94.1 million in 2023 compared to $91.6 million in the same period of 2022. The increase was primarily driven by $1.7 million of additional expenses from the Frontier acquisition completed at the end of the first quarter of 2022 and additional compensation and product fulfillment costs to support the organic sales growth.

Adjusted EBITDA

During 2023, Gexpro Services generated Adjusted EBITDA of $45.2 million, an increase of $2.0 million, or 4.6% from the same period a year ago primarily driven by increased revenue and gross profit margin, partially offset by an increase in Selling, general, and administrative expenses.

Consolidated Non-operating Income and Expense
Year Ended December 31,Change
(Dollars in thousands)20232022Amount%
Interest expense$(42,774)$(24,301)$(18,473)76.0 %
Loss on extinguishment of debt$— $(3,395)$3,395 N/M
Change in fair value of earnout liabilities$758 $(483)$1,241 N/M
Other income (expense), net$(2,982)$(670)$(2,312)N/M
Income tax expense (benefit)$6,960 $5,531 $1,429 25.8 %
N/M Not meaningful

Interest Expense

Interest expense increased $18.5 million in 2023 compared to the same period of 2022 primarily due to an increase in interest rates and higher borrowings related to the Hisco and other 2023 and 2022 acquisitions.

Loss on Extinguishment of Debt

The $3.4 million loss on extinguishment of debt in 2022was primarily due to the write-off of previously capitalized financing costs as a result of the debt refinancing related to the Mergers.

Change in Fair Value of Earnout Liabilities

The $0.8 million benefit in 2023 related to the change in fair value of the earnout liabilities associated with the Frontier acquisition and the Hisco Transaction. The $0.5 million expense in 2022 primarily related to the change in fair value of the earnout derivative liability associated with the earnout provisions of the Merger Agreements and the Frontier earnout. Refer to Note 8 – Earnout Liabilities and Note 3 – Business Acquisitions within Item 8. Financial Statements and Supplementary Data for information about the earnout liabilities.

Other Income (Expense), Net

Other income (expense), net consists of effects of changes in foreign currency exchange rates, interest income, net and other non-operating income and expenditures. The $2.3 million change in 2023 compared to the same period of 2022 was partly due to unfavorable changes in foreign currency exchange rates and other insignificant changes in other non-operating income and expenditures.

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Income Tax Expense (Benefit)

Income tax expense was $7.0 million, a (346.8)% effective tax rate for the year ended December 31, 2023 compared to income tax expense of $5.5 million and a 42.8% effective tax rate for the prior year. The change in the year-over-year effective tax rate was primarily due to an increase in the partial valuation allowance against our excess interest expense carryforward balance, state taxes, foreign income and a pre-tax loss in the current year. The 2022 income tax was also impacted by the creation of a consolidated group for federal income tax purposes as a result of the completion of the Mergers.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents were $83.9 million on December 31, 2023 compared to $24.6 million on December 31, 2022.

The Company believes its current balances of cash and cash equivalents, availability under its 2023 Amended Credit Agreement and cash flows from operations will be sufficient to meet its liquidity needs for the next twelve months. As of December 31, 2023, the Company had $83.9 million of cash and cash equivalents and $198.3 million of borrowing availability remaining, net of outstanding letters of credit, under the 2023 Amended Credit Agreement.

On June 2, 2023, the Company raised net proceeds of approximately $98.5 million from the Rights Offering, in which 4,444,444 shares of DSG common stock were sold at a purchase price of $22.50 per share. On June 8, 2023, the Company borrowed $305 million under the incremental term loan of the 2023 Amended Credit Agreement. The Company used these combined proceeds primarily to fund the Hisco Transaction and to pay down its revolving credit facility.

Our primary short-term and long-term liquidity and capital resource needs are to finance operating expenses, working capital, capital expenditures, potential business acquisitions, strategic initiatives and general corporate purposes. Our current debt obligations under the 2023 Amended Credit Agreement mature in April 2027. Required principal payments on the 2023 Amended Credit Agreement for the next twelve months are $30.3 million. Refer to Note 9 – Debt within Item 8. Financial Statements and Supplementary Data for additional information related to our debt obligations. Access to debt capital markets has historically provided the Company with sources of liquidity, beyond normal operating cash flows. We do not anticipate having difficulty in obtaining financing from those markets in the future, however, we cannot provide assurance that unforeseen events or events beyond our control (such as a potential tightening of debt capital markets) will not have a material adverse impact on our liquidity.

Sources and Uses of Cash

The following table presents a summary of our cash flows:
(in thousands)December 31, 2023December 31, 2022Change
Net cash provided by (used in) operating activities$102,286 $(11,029)$113,315 
Net cash provided by (used in) investing activities$(278,523)$(126,688)$(151,835)
Net cash provided by (used in) financing activities$250,406 $148,461 $101,945 

Cash Provided by (Used in) Operating Activities

Net cash provided by operations for the year ended December 31, 2023 was $102.3 million primarily due to non-cash items, partially offset by a net loss and improvements in working capital.

Net cash used in operations for the year ended December 31, 2022 was $11.0 million, excluding non-cash items, primarily due to increased accounts receivables driven by higher sales and increased inventories due to increased supplier costs driven by inflation and global supply chain disruptions.

Cash Provided by (Used in) Investing Activities

Net cash used in investing activities for the year ended December 31, 2023 was $278.5 million, primarily due to the Hisco Transaction, as well as purchases of property, plant and equipment and rental equipment which was partially offset by the sale of rental equipment.

39


Net cash used in investing activities for the year ended December 31, 2022 was $126.7 million, primarily due to acquisitions completed by TestEquity and Gexpro Services, as well as purchases of property, plant and equipment and rental equipment which was partially offset by the sale of rental equipment.

Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities for the year ended December 31, 2023 was $250.4 million due to proceeds from the 2023 Amended Credit Agreement and the Rights Offering partially offset by repayment of previous indebtedness and principal payments on the term loans. In conjunction with the Hisco Transaction, the Company borrowed $305.0 million under the incremental term loan facility on June 8, 2023 and raised approximately $98.5 million, net of offering costs, through the Rights Offering which closed during the second quarter of 2023. During 2023, deferred financing costs of $3.4 million were incurred related to the 2023 Amended Credit Agreement.

Net cash provided by financing activities for the year ended December 31, 2022 was $148.5 million, primarily due to proceeds from term loans and revolving credit facilities to finance the Mergers and other acquisitions, partly offset by repayment of previous indebtedness. Deferred financing costs of $12.0 million were incurred during 2022 related to these financing activities.

Financing and Capital Requirements

Credit Facility

On June 8, 2023, in connection with the Hisco Transaction, DSG entered into the First Amendment, which amended and replaced the Amended and Restated Credit Agreement dated April 1, 2022 with the 2023 Amended Credit Agreement, and provided for a $305 million incremental term loan facility. The 2023 Amended Credit Agreement also provides for the Company to increase the commitments from time to time by up to $200 million in the aggregate, subject to, among other things, receipt of additional commitments from existing and/or new lenders and pro forma compliance with certain financial covenants.

The 2023 Amended Credit Agreement includes a $200 million senior secured revolving credit facility, a $250 million senior secured initial term loan facility, a $305 million incremental term loan and a $50 million senior secured delayed draw term loan facility. Refer to Note 9 – Debt within Item 8. Financial Statements and Supplementary Data for a description of the 2023 Amended Credit Agreement.

On December 31, 2023, we had $574.7 million in outstanding borrowings under the 2023 Amended Credit Agreement and $198.3 million of borrowing availability remaining, net of outstanding letters of credit, under the senior secured revolving credit facility component.

As of December 31, 2023, we were in compliance with all financial covenants under our 2023 Amended Credit Agreement. While we were in compliance with our financial covenants as of December 31, 2023, failure to meet the covenant requirements of the 2023 Amended Credit Agreement in future quarters could lead to higher financing costs and increased restrictions, reduce or eliminate our ability to borrow funds, or accelerate the payment of our indebtedness and could have a material adverse effect on our business, financial condition and results of operations.

Purchase Commitments

As of December 31, 2023, we had contractual commitments to purchase approximately $146 million of products from our suppliers and contractors over the next twelve months.

Capital Expenditures

During the year endedDecember 31, 2023, total capital expenditures for property, plant and equipment and rental equipment were $24.7 million excluding proceeds from the sale of rental equipment. The Company expects to spend approximately $16 million to $20 million for capital expenditures during 2024 to support ongoing operations.

40


Stock Repurchase Program

The Company's Board of Directors previously authorized a stock repurchase program that permits the Company to repurchase its common stock. The timing and the amount of any repurchases will be determined by management under parameters established by the Board of Directors and depend on various factors including an evaluation of our stock price, corporate and regulatory requirements, capital availability and other market conditions. In December 2023, the Board of Directors increased the existing repurchase program by $25.0 million bringing the total authorized to $37.5 million.

During 2023, the Company repurchased 138,725 shares of DSG common stock at an average cost of $26.09 per share for a total cost of $3.6 million. During 2022, the Company repurchased 108,178 shares of DSG common stock at an average cost of $17.93 per share for a total cost of $1.9 million. The remaining availability for stock repurchases under the program was $29.0 million at December 31, 2023. See Note 11 – Stockholders' Equitywithin Item 8. Financial Statements and Supplementary Datafor further information.

Retention Bonuses

As part of the Purchase Agreement, DSG will also pay $37.5 million in cash or DSG common stock in retention bonuses to certain Hisco employees that remain employed with Hisco or its affiliates for at least twelve months after the closing of the Hisco Transaction. Pursuant to the Purchase Agreement, the Company paid $1.8 million of the retention bonuses during 2023 and will pay $34.6 million during 2024, with the remaining balance of $1.1 million to be paid in 2025.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

We have disclosed our significant accounting policies in Note 2 – Summary of Significant Accounting Policies within Item 8. Financial Statements and Supplementary Data. The following provides information on the accounts requiring more significant estimates.

Income Taxes - Deferred tax assets or liabilities reflect temporary differences between amounts of assets and liabilities for financial and tax reporting. Such amounts are adjusted, as appropriate, to reflect changes in enacted tax rates expected to be in effect when the temporary differences reverse. Significant judgment is required in determining income tax provisions as well as deferred tax asset and liability balances, including the estimation of valuation allowances and the evaluation of uncertain tax positions.

Goodwill Impairment - Goodwill represents the cost of business acquisitions in excess of the fair value of identifiable net tangible and intangible assets acquired. The Company reviews goodwill for potential impairment annually on October 1st, or when an event or other circumstances change that would more likely than not reduce the fair value of the asset below its carrying value.

The first step in the multi-step process to determine if goodwill has been impaired and to what degree is to review the relevant qualitative factors that could cause the fair value of the reporting unit to decrease below the carrying value of the reporting unit. The Company considers factors such as macroeconomic, industry and market conditions, cost factors, overall financial performance and other relevant factors that would affect the individual reporting units. If the Company determines that it is more likely than not that the fair value of the reporting unit is greater than the carrying value of the reporting unit, then no further impairment testing is needed. If the Company determines that it is more likely than not that the carrying value of the reporting unit is greater than the fair value of the reporting unit, the Company will move to the next step in the process. The Company will estimate the fair value of the reporting unit and compare it to the reporting unit's carrying value. If the carrying value of the reporting unit exceeds its fair value, the Company will record an impairment of goodwill equal to the amount the carrying value of the reporting unit exceeds its fair value, up to the total amount of goodwill previously recognized.

Business Combinations - We allocate the purchase price paid for assets acquired and liabilities assumed in connection with our acquisitions based on their estimated fair values at the time of acquisition. This allocation involves a number of assumptions, estimates, and judgments in determining the fair value, as of the acquisition date, of the following:
•intangible assets, including the valuation methodology (the relief of royalty method for trade names and multi-period excess earnings method for customer relationships), estimations of future cash flows, discount rates, royalty rates, recurring revenue attributed to customer relationships, and our assumed market segment share, as well as the estimated useful life of intangible assets;
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•deferred tax assets and liabilities, uncertain tax positions, and tax-related valuation allowances;
•inventory;
•property, plant and equipment;
•pre-existing liabilities or legal claims;
•contingent consideration, including estimating the likelihood and timing of achieving the relevant thresholds; and
•goodwill as measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed.

Our assumptions and estimates are based upon comparable market data and information obtained from our management and the management of the acquired companies. We allocate goodwill to the reporting units of the business that are expected to benefit from the business combination.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The following information is presented in this item:
Page #
Report of Independent Registered Public Accounting Firm (Grant Thornton, LLP; Los Angeles, California; PCAOB ID#248)
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Report of Independent Registered Public Accounting Firm (BDO USA, P.C.; Chicago, Illinois; PCAOB ID#243)
46
47
48
49
Consolidated Statements of Cash Flows for the Years ended December 31, 2023 and 2022
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Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders
Distribution Solutions Group, Inc.

Opinion on the financial statements
We have audited the accompanying consolidated balance sheet of Distribution Solutions Group, Inc., (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2023, and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for the year ended December 31, 2023, and the related notes(collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Companyas of December 31, 2023, and the results of itsoperations and itscash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 7, 2024 expressed an unqualified opinion.

Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Business Acquisition – HIS Company, Inc. – Valuation of acquired Intangible Assets
As described further in Note 3 to the financial statements, the Company acquired HIS Company, Inc. on June 8, 2023, for a total purchase price of approximately $267.3 million, net of cash acquired. The Company allocated the purchase price, on a preliminary basis, to the assets acquired and liabilities assumed based on their respective fair values, including identified intangible assets of $65.3 million.

The principal considerations for our determination that the valuation of acquired customer relationships and trade names is a critical audit matter are (i) the significant judgment by management when determining assumptions used in the fair value measurement of acquired intangible assets and (ii) the high degree of auditor judgment and subjectivity in performing procedures and evaluating management’s significant assumptions relating to the projected forecasted information including revenue growth rate, weighted average cost of capital (WACC), royalty rate, and customer attrition rate.

Our audit procedures related to the valuation of the acquired intangible assets included the following, among others:

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(i) we tested the design and operating effectiveness of the controls over the Company’s acquisition and valuation process, including review of the valuation model, significant assumptions used, and the completeness and accuracy of the underlying data used

(ii) we reviewed the projected forecasted information including forecasted revenue growth rate by assessing the reasonableness of management’s forecasts compared to historical results and forecasted industry trends

(iii) with the assistance of our valuation specialists, we assessed the assumptions and methodologies used in developing the WACC, royalty rates, and customer attrition rates by developing a range of independent estimates and comparing those to the rates selected by management. We also involved our valuation specialists to validate the assumptions and methodologies used in valuing the intangible assets.


/s/ GRANT THORNTON LLP

We have served as the Company's auditor since 2023.

Los Angeles, California
March 7, 2024



45


Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors
Distribution Solutions Group, Inc.
Chicago, Illinois

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Distribution Solutions Group, Inc. (the “Company”) as of December 31, 2022, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.


/s/ BDO USA, P.C.

We served as the Company's auditor from 2022 to 2023.

Chicago, Illinois

March 14, 2023, except for effects of the Stock Split described in Notes 1 and 11, as to which the date is March 7, 2024


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Distribution Solutions Group, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except share data)
December 31,
20232022
ASSETS
Current assets:
Cash and cash equivalents$83,931 $24,554 
Restricted cash15,695 186 
Accounts receivable, less allowances of $2,120 and $1,513, respectively213,448 166,301 
Inventories315,984 264,374 
Prepaid expenses and other current assets28,272 22,773 
Total current assets657,330 478,188 
Property, plant and equipment, net113,811 64,395 
Rental equipment, net24,575 27,139 
Goodwill399,925 348,048 
Deferred tax asset, net95 189 
Intangible assets, net253,834 227,994 
Cash value of life insurance18,493 17,166 
Right of use operating lease assets76,340 46,755 
Other assets5,928 5,736 
Total assets$1,550,331 $1,215,610 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$98,674 $80,486 
Current portion of long-term debt32,551 16,352 
Current portion of lease liabilities13,549 9,964 
Accrued expenses and other current liabilities97,241 62,677 
Total current liabilities242,015 169,479 
Long-term debt, less current portion, net535,881 395,825 
Lease liabilities67,065 39,828 
Deferred tax liability, net18,326 23,834 
Other liabilities25,443 23,649 
Total liabilities888,730 652,615 
Commitments and contingencies (Note 15)
Stockholders’ equity(1):
Preferred stock, $1 par value:
Authorized - 500,000 shares, issued and outstanding - None— — 
Common stock, $1 par value:
Authorized - 70,000,000 shares
Issued - 47,535,618 and 39,460,724 shares, respectively
Outstanding - 46,758,359 and 38,833,568 shares, respectively
46,758 38,834 
Capital in excess of par value671,154 572,379 
Retained deficit(34,707)(25,736)
Treasury stock - 777,259 and 627,156 shares, respectively(16,434)(12,526)
Accumulated other comprehensive income (loss)(5,170)(9,956)
Total stockholders’ equity661,601 562,995 
Total liabilities and stockholders’ equity$1,550,331 $1,215,610 
(1) The accompanying Consolidated Financial Statements and notes thereto have been retroactively adjusted to reflect the two-for-one stock split completed in August 2023. See Note 1 – Nature of Operations and Basis of Presentation for details.

See notes to Consolidated Financial Statements
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Distribution Solutions Group, Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Dollars in thousands, except per share data)
Year Ended December 31,
20232022
Revenue$1,570,402 $1,151,422 
Cost of goods sold1,018,527 760,524 
Gross profit551,875 390,898 
Selling, general and administrative expenses508,884 349,112 
Operating income (loss)42,991 41,786 
Interest expense(42,774)(24,301)
Loss on extinguishment of debt— (3,395)
Change in fair value of earnout liabilities758 (483)
Other income (expense), net(2,982)(670)
Income (loss) before income taxes(2,007)12,937 
Income tax expense (benefit)6,960 5,531 
Net income (loss)$(8,967)$7,406 
Basic income (loss) per share of common stock(1)
$(0.20)$0.22 
Diluted income (loss) per share of common stock(1)
$(0.20)$0.21 
Comprehensive income (loss)
Net income (loss)$(8,967)$7,406 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment4,906 (11,525)
Other(120)— 
Comprehensive income (loss)$(4,181)$(4,119)
(1) The accompanying Consolidated Financial Statements and notes thereto have been retroactively adjusted to reflect the two-for-one stock split completed in August 2023. See Note 1 – Nature of Operations and Basis of Presentation for details.

See notes to Consolidated Financial Statements
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Distribution Solutions Group, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
(Dollars in thousands, except share data)

Common Stock(1)
Capital in Excess of Par Value(1)
Accumulated Other Comprehensive Income (Loss)Total Stockholders' Equity
Outstanding Shares$1 Par ValueRetained DeficitTreasury Stock
Balance at January 1, 202220,589,648 $20,636 $186,739 $(33,142)$(10,033)$1,569 $165,769 
Net income (loss)— — — 7,406 — — 7,406 
Foreign currency translation adjustment— — — — — (11,525)(11,525)
Stock-based compensation— — 1,505 — — — 1,505 
Shares issued135,927 135 (135)— — — — 
Deemed consideration for reverse acquisition18,240,334 18,240 333,251 — — — 351,491 
Reclassification of issuable shares from earnout derivative liability— — 43,624 — — — 43,624 
Fair value adjustment of stock-based compensation awards— — 1,910 — — — 1,910 
Repurchases of common stock(108,178)(108)108 — (1,940)— (1,940)
Tax withholdings related to net share settlements of stock-based compensation awards(24,163)(24)57 — (553)— (520)
Settlement of related party liability— — 5,276 — — — 5,276 
Other— (45)44 — — — (1)
Balance at December 31, 202238,833,568 $38,834 $572,379 $(25,736)$(12,526)$(9,956)$562,995 
Net income (loss)— — — (8,967)— — (8,967)
Foreign currency translation adjustment— — — — — 4,906 4,906 
Stock-based compensation— — 3,732 — — — 3,732 
Stock-based compensation liability paid in shares— — 227 — — — 227 
Shares issued85,842 86 (86)— — — — 
Shares issued - earnout3,400,000 3,400 (3,400)— — — — 
Issuance of common stock in rights offering4,444,444 4,444 94,025 — — — 98,469 
Shares issued through employee share purchase plan144,608 144 3,109 — — — 3,253 
Compensation expense related to employee share purchase plan— — 427 — — — 427 
Repurchases of common stock(138,725)(139)139 — (3,619)— (3,619)
Tax withholdings related to net share settlements of stock-based compensation awards(11,378)(11)11 — (287)— (287)
Other— — 591 (4)(2)(120)465 
Balance at December 31, 202346,758,359 $46,758 $671,154 $(34,707)$(16,434)$(5,170)$661,601 
(1) The accompanying Consolidated Financial Statements and notes thereto have been retroactively adjusted to reflect the two-for-one stock split completed in August 2023. See Note 1 – Nature of Operations and Basis of Presentation for details.

See notes to Consolidated Financial Statements
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Distribution Solutions Group, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Year Ended December 31,
20232022
Operating activities
Net income (loss)$(8,967)$7,406 
Adjustments to reconcile to net cash used in operating activities:
Depreciation and amortization63,588 45,186 
Amortization of debt issuance costs2,420 1,888 
Extinguishment of debt— 3,395 
Stock-based compensation7,940 2,448 
Compensation expense related to employee share purchases427 — 
Deferred income taxes(8,028)(2,406)
Change in fair value of earnout liabilities(758)483 
Gain on sale of rental equipment(2,675)(3,632)
Loss on sale of property, plant and equipment294 — 
Charge for step-up of acquired inventory3,582 2,866 
Net realizable value adjustment and write-offs for obsolete and excess inventory8,990 4,608 
Bad debt expense784 795 
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable18,020 (21,771)
Inventories(1,236)(42,404)
Prepaid expenses and other current assets931 (1,874)
Accounts payable3,048 (8,839)
Accrued expenses and other current liabilities13,667 4,492 
Other changes in operating assets and liabilities259 (3,670)
Net cash provided by (used in) operating activities102,286 (11,029)
Investing activities
Purchases of property, plant and equipment(15,337)(8,307)
Business acquisitions, net of cash acquired(259,835)(115,343)
Purchases of rental equipment(9,341)(11,794)
Proceeds from sale of rental equipment5,990 8,756 
Net cash provided by (used in) investing activities(278,523)(126,688)
Financing activities
Proceeds from revolving lines of credit180,982 383,489 
Payments on revolving lines of credit(302,083)(320,751)
Proceeds from term loans305,000 445,630 
Payments on term loans(26,375)(335,305)
Deferred financing costs(3,419)(11,956)
Proceeds from rights offering, net of offering costs of $1,53198,469 — 
Repurchase of common stock(3,619)(1,940)
Shares repurchased held in treasury(287)(520)
Proceeds from employees for share purchases3,253 — 
Payment of financing lease principal(515)(429)
Payment of earnout(1,000)— 
Payment on seller's note— (9,757)
Net cash provided by (used in) financing activities250,406 148,461 
Effect of exchange rate changes on cash and cash equivalents717 (675)
Increase (decrease) in cash, cash equivalents and restricted cash74,886 10,069 
Cash, cash equivalents and restricted cash at beginning of period24,740 14,671 
Cash, cash equivalents and restricted cash at end of period$99,626 $24,740 
Cash and cash equivalents$83,931 $24,554 
Restricted cash15,695 186 
Total cash, cash equivalents and restricted cash$99,626 $24,740 
See notes to Consolidated Financial Statements
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Distribution Solutions Group, Inc.
Consolidated Statements of Cash Flows (Continued)
(Dollars in thousands)
Year Ended December 31,
 20232022
Supplemental disclosure of cash flow information
Net cash paid for income taxes$12,422 $13,813 
Net cash paid for interest$38,048 $22,153 
Net cash paid for interest on supply chain financing$2,581 $1,291 
Non-cash activities:
Fair value of common stock exchanged for reverse acquisition$— $351,491 
Settlement of related party obligations$— $5,276 
Right of use assets obtained in exchange for finance lease liabilities$616 $886 
Right of use assets obtained in exchange for operating lease liabilities$19,424 $14,634 
Seller's note issued as purchase consideration$— $1,169 

See notes to Consolidated Financial Statements

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Distribution Solutions Group, Inc.
Notes to Consolidated Financial Statements

Note 1 – Nature of Operations and Basis of Presentation

Organization

Distribution Solutions Group, Inc. ("DSG"), a Delaware corporation, is a global specialty distribution company providing value added distribution solutions to the maintenance, repair and operations ("MRO"), original equipment manufacturer ("OEM") and industrial technology markets. DSG has three principal operating companies: Lawson Products, Inc. ("Lawson"), TestEquity Acquisition, LLC ("TestEquity") and 301 HW Opus Holdings, Inc., conducting business as Gexpro Services ("Gexpro Services"). The complementary distribution operations of Lawson, TestEquity and Gexpro Services were combined on April 1, 2022 to create a global specialty distribution company. A summary of the Mergers (as defined below), including the legal entities party to the transactions and the stock consideration, is presented below.

Unless the context requires otherwise, references in this Annual Report on Form 10-K to “DSG”, the “Company”, "we", "our" or "us" refer to Distribution Solutions Group, Inc., and all entities consolidated in the accompanying consolidated financial statements.

Combination with TestEquity and Gexpro Services

On December 29, 2021, DSG entered into:

• an Agreement and Plan of Merger (the “TestEquity Merger Agreement”) by and among (i) LKCM TE Investors, LLC, a Delaware limited liability company (the “TestEquity Equityholder”), (ii) TestEquity, which was a wholly-owned subsidiary of the TestEquity Equityholder, (iii) DSG and (iv) Tide Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary of DSG (“Merger Sub 1”), pursuant to the terms and subject to the conditions of which the parties agreed, among other things, that Merger Sub 1 would merge with and into TestEquity, with TestEquity surviving the merger as a wholly-owned subsidiary of DSG (the “TestEquity Merger”); and

• an Agreement and Plan of Merger (the “Gexpro Services Merger Agreement” and, together with the TestEquity Merger Agreement, the “Merger Agreements”) by and among (i) 301 HW Opus Investors, LLC, a Delaware limited liability company (the “Gexpro Services Stockholder”), (ii) Gexpro Services, which was a wholly-owned subsidiary of the Gexpro Services Stockholder, (iii) DSG and (iv) Gulf Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of DSG (“Merger Sub 2”), pursuant to the terms and subject to the conditions of which the parties agreed, among other things, that Merger Sub 2 would merge with and into Gexpro Services, with Gexpro Services surviving the merger as a wholly-owned subsidiary of DSG (the “Gexpro Services Merger” and, together with the TestEquity Merger, the “Mergers”).

At the closing of the Mergers, each outstanding share of TestEquity and Gexpro Services common stock outstanding immediately prior to the closing of the Mergers was converted into approximately 0.1809 shares and 0.3838 shares, respectively, of DSG common stock, based on the ratio of outstanding shares of each entity immediately prior to the Mergers to the number of shares of DSG common stock acquired in the Mergers.

Completion of the TestEquity Merger

On April 1, 2022 (the "Merger Date"), the TestEquity Merger was consummated pursuant to the TestEquity Merger Agreement. In accordance with the TestEquity Merger Agreement, Merger Sub 1 merged with and into TestEquity, with TestEquity surviving as a wholly-owned subsidiary of DSG.

In accordance with and under the terms of the TestEquity Merger Agreement, in connection with the closing of the TestEquity Merger on the Merger Date, DSG: (i) issued to the TestEquity Equityholder 6,600,000 shares of DSG common stock, (ii) on behalf of TestEquity, paid certain indebtedness of TestEquity and (iii) on behalf of TestEquity, paid certain transaction expenses of TestEquity.

The TestEquity Merger Agreement provided that up to an additional 1,400,000 shares of DSG common stock would be potentially issuable to the TestEquity Equityholder in accordance with, and subject to the terms and conditions of, the earnout provisions of the TestEquity Merger Agreement. On March 20, 2023, DSG issued 1,400,000 shares of DSG common stock to the TestEquity Equityholder (the "TestEquity Holdback Shares") pursuant to the terms of the earnout provisions of the TestEquity Merger Agreement. The TestEquity Holdback Shares issued represented the maximum number of additional shares that could be issued under the TestEquity Merger Agreement, and no further shares are available for issuance, and no
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additional shares will be issued, in connection with the TestEquity Merger Agreement. Refer to Note 8 – Earnout Liabilities for information about the earnout derivative liability related to the TestEquity Holdback Shares.

Completion of the Gexpro Services Merger

On the Merger Date, the Gexpro Services Merger was consummated pursuant to the Gexpro Services Merger Agreement. In accordance with the Gexpro Services Merger Agreement, Merger Sub 2 merged with and into Gexpro Services, with Gexpro Services surviving as a wholly-owned subsidiary of DSG.

In accordance with and under the terms of the Gexpro Services Merger Agreement, in connection with the closing of the Gexpro Services Merger on the Merger Date, DSG: (i) issued to the Gexpro Services Stockholder 14,000,000 shares of DSG common stock, (ii) on behalf of Gexpro Services, paid certain indebtedness of Gexpro Services and (iii) on behalf of Gexpro Services, paid certain specified transaction expenses of Gexpro Services.

The Gexpro Services Merger Agreement provided that up to an additional 2,000,000 shares of DSG common stock would be potentially issuable to the Gexpro Services Stockholder in accordance with, and subject to the terms and conditions of, the earnout provisions of the Gexpro Services Merger Agreement. On March 20, 2023, DSG issued 2,000,000 shares of DSG common stock to the Gexpro Services Stockholder (the “Gexpro Services Holdback Shares”) pursuant to the terms of the earnout provisions of the Gexpro Services Merger Agreement. The Gexpro Services Holdback Shares issued represented the maximum number of additional shares that could be issued under the Gexpro Services Merger Agreement, and no further shares are available for issuance, and no additional shares will be issued, in connection with the Gexpro Services Merger Agreement.

As of April 1, 2022, approximately 1,076,000 of the Gexpro Services Holdback Shares had been expected to be issued under the first earnout opportunity in the Gexpro Services Merger Agreement based on certain earnout metrics related to the consummation of certain additional acquisitions which were completed prior to the Merger Date. Under the Gexpro Services Merger Agreement, if any Gexpro Services Holdback Shares remained after the calculation of the first earnout opportunity, there was a second earnout opportunity under the Gexpro Services Merger Agreement based on certain earnout performance metrics. On March 20, 2023, all 2,000,000 Gexpro Services Holdback Shares were issued under the earnout opportunities. The incremental 924,000 Gexpro Services Holdback Shares that were issued in excess of the 1,076,000 Gexpro Services Holdback Shares that were originally expected to be issued had been remeasured at fair value immediately prior to and reclassified to equity at December 31, 2022. Refer to Note 8 – Earnout Liabilities for information about the earnout derivative liability related to the Gexpro Services Holdback Shares.

Accounting for the Mergers

TestEquity and Gexpro Services were treated as a combined entity as the accounting acquirer for financial reporting purposes, and DSG was identified as the accounting acquiree. Accordingly, periods prior to the April 1, 2022 Merger Date reflect the results of operations of TestEquity and Gexpro Services on a consolidated basis, and the results of operations of DSG's legacy Lawson business are only included subsequent to the April 1, 2022 Merger Date.

Nature of Operations

A summary of the nature of operations for each of DSG's operating companies is presented below. Information regarding DSG's reportable segments is presented in Note 14 – Segment Information.

Lawson is a distributor of specialty products and services to the industrial, commercial, institutional and government maintenance, repair and operations market.

TestEquity is a distributor of test and measurement equipment and solutions, industrial and electronic production supplies, vendor managed inventory programs, and converting, fabrication and adhesive solutions from its leading manufacturer partners supporting the aerospace and defense, wireless and communication, semiconductors, industrial electronics and automotive, and electronics manufacturing industries.

Gexpro Services is a global supply chain solutions provider, specializing in the development of mission critical production line management, aftermarket and field installation programs.

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Basis of Presentation and Consolidation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and include the accounts and transactions of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

2023 Stock Split

On August 15, 2023, DSG announced that its Board of Directors approved and declared a two-for-one stock split (the “Stock Split”) which entitled each stockholder of record as of the close of business on August 25, 2023 to receive one additional share of DSG common stock for each share of DSG common stock then-held. The additional shares were distributed after the close of trading on August 31, 2023, and shares of DSG common stock began trading at the split-adjusted basis on September 1, 2023. Accordingly, all share and per share amounts have been retroactively adjusted to reflect the impact of the Stock Split for all periods presented herein. Refer to Note 11 – Stockholders' Equity for additional information about the Stock Split.

2022 Mergers

The Mergers were accounted for as a reverse merger under the acquisition method of accounting in accordance with the accounting guidance for reverse acquisitions as provided in Accounting Standards Codification ("ASC") 805, Business Combinations ("ASC 805"). Under this guidance, TestEquity and Gexpro Services were treated as a combined entity as the accounting acquirer for financial reporting purposes, and DSG was identified as the accounting acquiree. This determination was primarily made as TestEquity and Gexpro Services were under the common control of an entity that owns a majority of the voting rights of the combined entity, and therefore, only DSG experienced a change in control. Accordingly, the consolidated financial statements for the year ended December 31, 2022 reflect the results of operations and financial position of TestEquity and Gexpro Services on a consolidated basis, and the results of operations of DSG's legacy Lawson business are only included subsequent to the April 1, 2022 Merger Date. The combined operations of all three entities are included in the consolidated financial statements for the year ended December 31, 2023. The financial statements as of December 31, 2023 and 2022 reflect the financial position of TestEquity, Gexpro Services and DSG's legacy Lawson business on a consolidated basis.

Note 2 – Summary of Significant Accounting Policies

Revenue Recognition —

Revenue from Contracts with Customers: Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring a product or providing a service. A majority of the Company’s revenue is short cycle in nature with shipments within one year of the order. A small portion of the Company’s revenue derives from contracts extending over one year and in some cases may have optional renewal terms if both parties agree to renew. The Company’s payment terms generally range between 10 to 120 days and vary by contract, the types of products sold and the volume of products sold, among other factors. Revenue includes product sales, services and billings for shipping charges, net of discounts, expected returns, rebates and sales tax. Estimates for rebates and expected returns is based on historical experience. The Company includes shipping costs billed to customers in Revenue and the related shipping costs in Cost of goods sold in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Performance Obligations: A majority of the Company’s contracts have a performance obligation which represents, in most cases, the product being sold to the customer. Some contracts include a second performance obligation to provide additional Vendor Managed Inventory ("VMI") services primarily related to monitoring and stocking. Although the Company has identified that it offers some customers both a product and a service obligation, the customer only receives one invoice per transaction with no price allocation between these obligations. The Company does not price its offerings based on any allocation between these obligations.

A portion of the Company’s contracts offer assurance-type warranties in connection with the sale of a product to the customer. Assurance-type warranties provide a customer with assurance that the related product will function as parties intended because it complies with the agreed-upon specifications. Such warranties are not significant and do not represent a separate performance obligation.

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Select contracts with customers include variable consideration primarily related to volume rebates if predetermined thresholds are met. The Company estimates variable consideration using the expected-value method considering all reasonably available information, including experience, current, historical, and forecasted. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.

Over 95% of the Company’s performance obligations are recognized at a point in time, rather than over time, as the Company completes its performance obligations. Specifically, revenue is recognized when control transfers to the customer, typically upon shipment or receipt by the customer. Less than 5% of the Company's revenue is recognized over time and relates to services, in which the Company transfers control of a good or service over time and the customer simultaneously receives and consumes the benefits. That portion of expected consideration is deferred until the time that those services have been provided and the related performance obligations have been satisfied. At December 31, 2023 and 2022, the deferred consideration for the service performance obligations that have not been satisfied was insignificant and will be recognized within twelve months of the respective balance sheet date.

For revenue recognized over time, the input method is utilized and is based on costs incurred relative to estimated total costs.

Contract Costs: The Company has adopted the practical expedient within ASC 340, Other Assets and Deferred Costs ("ASC 340"), to recognize incremental costs to obtain a contract, primarily employee related costs, as expense when incurred since the amortization period of the asset that the Company otherwise would have recognized is one year or less.

Rental Revenue: The Company determines if a contract contains a lease at inception. A contract contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Lawson and TestEquity segments operate as a lessor and rent certain equipment to customers through leases classified as operating leases under ASC 842, Leases ("ASC 842"). Lease revenue is recognized on a straight-line basis over the life of each lease. As there are trivial non-lease components, the Company has adopted the practical expedient not to separate the non-lease components that would be within the scope of ASC 606, Revenue from Contracts with Customers ("ASC 606") from the associated lease component as the relevant criteria under ASC 842 are met.

Cash, Cash Equivalents, and Restricted Cash— The Company considers all liquid investments with a maturity of three months or less when purchased to be cash equivalents. The carrying amount of the Company’s cash equivalents at December 31, 2023 and December 31, 2022 approximates fair value. Cash balances at individual banks may exceed the federally insured limit by the Federal Deposit Insurance Corporation (the “FDIC”). The Company has not experienced any material losses in such accounts.

Allowance for Doubtful Accounts — The Company evaluates the collectability of accounts receivable based on a combination of factors. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations (e.g., bankruptcy filings, substantial down-grading of credit ratings), a specific reserve for bad debts is recorded against amounts due to reduce the receivable to the amount the Company reasonably believes will be collected. For all other customers, the Company recognizes reserves for bad debts based on current and forecasted probability of collection, economic conditions, historical experience of bad debt write-offs as a percent of accounts receivable outstanding, and other significant events that may impact the collectibility of accounts receivable. Uncollected trade receivables are written off when identified to be unrecoverable.

Inventories— Inventories principally consist of purchased finished products and manufactured electronic equipment offered for resale stated at the lower of cost or net realizable value using the first-in-first-out method for the Lawson segment and primarily the weighted average method for the TestEquity and Gexpro Services segments. Most of our products are not exposed to the risk of obsolescence due to technology changes. However, some of our products do have a limited shelf life, and from time to time we add and remove items from our catalogs, brochures or website for marketing and other purposes.

To reduce the cost basis of inventory to a lower of cost or net realizable value, a write-down is recorded for slow-moving and obsolete inventory based on historical experience and monitoring of current inventory activity. Estimates are used to determine the necessity of recording these write-downs based on periodic detailed analysis using both qualitative and quantitative factors. As part of this analysis, the Company considers several factors including the inventories length of time on hand, historical sales, product shelf life, product life cycle, product category and product obsolescence. In general,
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depending on the product category, we write-down inventory with low turnover at higher rates than inventory with higher turnover.

Property, Plant and Equipment — Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation expense is computed primarily by the straight-line method for buildings, machinery and equipment, furniture and fixtures and vehicles. The Company estimates useful lives of 10 to 40 years for buildings and improvements, the shorter of the useful life of the assets or term of the underlying leases for leasehold improvements, and 2 to 10 years for machinery and equipment, furniture and fixtures and vehicles. Capitalized software is amortized over estimated useful lives of 3 to 5 years using the straight-line method. The costs of repairs, maintenance and minor renewals are charged to expense as incurred. Amortization of financing leases is included in depreciation expense. When property, plant and equipment are retired, sold, or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in the income from operations.

Rental Equipment — Rental equipment is stated at cost less accumulated depreciation and amortization. Expense is computed primarily by the straight-line method over an estimated useful life of 3 to 7 years. Upon sale or retirement of such assets, the related cost and accumulated depreciation are removed from the Consolidated Balance Sheets, and gains or losses are reflected in operating income (loss) within the Consolidated Statements of Operations and Comprehensive Income (Loss). The costs of repairs, maintenance and minor renewals are charged to expense as incurred.

Cash Value of Life Insurance— The Company invests funds in life insurance policies for certain current and former employees. The cash surrender value of the policies is invested in various investment instruments and is recorded as an asset in the Consolidated Balance Sheets. The Company records these policies at their contractual value. The change in the cash surrender value of the life insurance policies, which is recorded as a component of Other income (expense) in the Consolidated Statements of Operations and Comprehensive Income (Loss), is the change in the policies' contractual values.

Deferred Compensation — The Company’s Executive Deferral Plan (“Deferral Plan”) allows certain executives to defer payment of a portion of their earned compensation. The deferred compensation is recorded in an account balance, which is a bookkeeping entry made by the Company to measure the amount due to the participant. The account balance is equal to the participant’s deferred compensation, adjusted for increases and/or decreases in the amount that the participant has designated to one or more bookkeeping portfolios that track the performance of certain mutual funds. The Company adjusts the deferred compensation liability to equal the contractual value of the participants’ account balances. These adjustments are the changes in contractual value of the individual plans and are recorded as a component of Other income (expense) in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Stock-Based Compensation — Compensation based on the share value of DSG common stock is valued at its fair value at the grant date and the expense is recognized over the vesting period. Fair value is re-measured each reporting period for liability-classified awards that may be redeemable in cash. The Company accounts for forfeitures of stock-based compensation in the period in which they occur.

Goodwill — The Company had $399.9 million of goodwill at December 31, 2023 and $348.0 million of goodwill at December 31, 2022. Goodwill represents the cost of business acquisitions in excess of the fair value of identifiable net tangible and intangible assets acquired. The Company reviews goodwill for potential impairment annually on October 1st, or when an event or other circumstances change that would more likely than not reduce the fair value of the asset below its carrying value.

The first step in the multi-step process to determine if goodwill has been impaired and to what degree is to review the relevant qualitative factors that could cause the fair value of the reporting unit to decrease below the carrying value of the reporting unit. The Company considers factors such as macroeconomic, industry and market conditions, cost factors, overall financial performance and other relevant factors that would affect the individual reporting units. If the Company determines that it is more likely than not that the fair value of the reporting unit is greater than the carrying value of the reporting unit, then no further impairment testing is needed. If the Company determines that it is more likely than not that the carrying value of the reporting unit is greater than the fair value of the reporting unit, the Company will move to the next step in the process. The Company will estimate the fair value of the reporting unit and compare it to the reporting unit's carrying value. If the carrying value of the reporting unit exceeds its fair value, the Company will record an impairment of goodwill equal to the amount the carrying value of the reporting unit exceeds its fair value, up to the total amount of goodwill previously recognized.

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Intangible Assets — The Company's intangible assets primarily consist of trade names and customer relationships. Intangible assets are amortized over a weighted average of 8 to 15 year and 9 to 20 year estimated useful lives for trade names and customer relationships, respectively. The Company amortizes trade name intangible assets on a straight-line basis and customer relationship intangible assets on a basis consistent with their estimated economic benefit.

Impairment of Long-Lived Assets — The Company reviews its long-lived assets, including property, plant and equipment, right of use assets and definite life intangibles, for impairment whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be recoverable. Recoverability is measured by a comparison of the assets carrying amount to their expected future undiscounted net cash flows. If such assets are considered to be impaired, the impairment to be recognized is measured based on the amount by which the carrying amount of the asset exceeds its fair value. No impairments occurred in 2023 or 2022.

Income Taxes — Deferred tax assets or liabilities reflect temporary differences between amounts of assets and liabilities for financial and tax reporting. Such amounts are adjusted, as appropriate, to reflect changes in enacted tax rates expected to be in effect when the temporary differences reverse. A valuation allowance is established to offset any deferred tax assets if, based upon the available evidence, it is more likely than not (i.e. greater than 50% likely) that some or all of the deferred tax assets will not be realized. The determination of the amount of a valuation allowance to be provided on recorded deferred tax assets involves estimates regarding (1) the timing and amount of the reversal of taxable temporary differences, (2) expected future taxable income, (3) the impact of tax planning strategies and (4) the ability to carry back deferred tax assets to offset prior taxable income. In assessing the need for a valuation allowance, the Company considers all available positive and negative evidence, including past operating results, projections of future taxable income and the feasibility of ongoing tax planning strategies. The projections of future taxable income include a number of estimates and assumptions regarding our volume, pricing and costs. Additionally, valuation allowances related to deferred tax assets can be impacted by changes to tax laws. Significant judgment is required in determining income tax provisions as well as deferred tax asset and liability balances, including the estimation of valuation allowances and the evaluation of uncertain tax positions.

Earnings from the Company's foreign subsidiaries are considered to be indefinitely reinvested. A distribution of these non-U.S. earnings in the form of dividends or otherwise would subject the Company to foreign withholding taxes and may subject the Company to U.S. federal and state taxes.

The Company recognizes the benefit of tax positions when a benefit is more likely than not (i.e., greater than 50% likely) to be sustained on its technical merits. Recognized tax benefits are measured at the largest amount that is more likely than not to be sustained, based on cumulative probability, in final settlement of the position. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of Income tax expense (benefit) in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Leases — The Company determines if a contract contains a lease at inception. A contract contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. At the commencement date of a lease, the Company recognizes a liability to make lease payments and a Right Of Use ("ROU") asset representing the right to use the underlying asset during the lease term. The Company includes options to extend or terminate a lease within the lease term when it is reasonably certain the option will be exercised. Leases are categorized as either operating or financing leases at commencement of the lease. Operating leases consist of office space, distribution and service centers, and Bolt branches. Financing leases primarily consist of equipment such as forklifts and copiers. The lease liability is measured at the present value of fixed lease payments over the lease term. The lease liability includes payments allocated to lease components, while payments allocated to non-lease components are expensed as incurred for all asset classes. The Company uses its incremental borrowing rate to discount the total cash payments to present value for each lease. The Company reviews each lease to determine if there is a more appropriate discount rate to apply. The initial measurement of the ROU asset includes the initial measurement of the lease liability, fixed lease payments made in advance of the lease commencement date and initial direct costs incurred by the Company and excludes lease incentives. Variable lease payments, such as payments based on an index rate or usage, are expensed as incurred and excluded from lease liabilities and ROU assets. Upon commencement of the lease, rent expense is recognized on a straight-line basis for each operating lease. Each financing lease ROU asset is amortized on a straight-line basis over the lease period. The Company has elected the practical expedient to exclude any short-term lease, defined as a lease with an initial term of 12 months or less, from the provisions of ASC 842. The short-term leases are not recorded in the consolidated balance sheets. The lease expense for short-term leases is recognized on a straight-line basis over the lease term.

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The Lawson and TestEquity segments operate as a lessor and rent certain equipment to customers through leases classified as operating leases. The leased equipment is recognized in Rental equipment, net in the Consolidated Balance Sheets and the leasing revenue is recognized on a straight-line basis.

Earnings per Share— Basic earnings per share ("EPS") is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted-average number of shares of common stock and, if dilutive, common stock equivalents outstanding during the period. Diluted earnings per share reflect the potential dilution from the exercise or conversion of outstanding performance awards, stock options, market stock units and restricted stock awards into common stock. The dilutive effect of these common stock equivalents is reflected in diluted earnings per share by application of the treasury stock method. Contingently issuable shares are considered outstanding common shares and included in basic EPS as of the date that all necessary conditions have been satisfied (i.e., when issuance of the shares is no longer contingent). For diluted EPS, the contingently issuable shares should be included in the denominator of the diluted EPS calculation as of the beginning of the interim period in which the conditions are satisfied and the earnout arrangements have been resolved.

In accordance with ASC 260, Earnings per Share ("ASC 260"), the historical EPS was retrospectively adjusted to reflect the impact of the two-for-one stock split that occurred during 2023.

For the reverse acquisition period prior to April 1, 2022, the Company calculates the basic EPS for each comparative period before the acquisition date presented in the consolidated financial statements by dividing the income of the accounting acquirer attributable to common shareholders in each of those periods by the accounting acquirer’s historical weighted-average number of common shares outstanding. The Company calculates the weighted-average number of common shares outstanding (the denominator of the EPS calculation), including the equity interests issued by the legal acquirer to effect the reverse acquisition, as the number of common shares outstanding from the beginning of that period to the acquisition date computed on the basis of the weighted-average number of common shares of the accounting acquirer outstanding during the period multiplied by an exchange ratio derived from the shares exchanged at the Merger Date.

Foreign Currency — The accounts of foreign subsidiaries are measured using the local currency as the functional currency. All balance sheet amounts are translated into U.S. dollars using the exchange rates in effect at the applicable period end. Components of income or loss are translated using the average exchange rate for each reporting period.

Gains and losses resulting from changes in the exchange rates from translation of the subsidiary accounts in local currency to U.S. dollars are reported as a component of Accumulated other comprehensive income or loss in the Consolidated Balance Sheets. Gains and losses resulting from the effect of exchange rate changes on transactions denominated in currencies other than the functional currency are included as a component of net income or loss upon settlement of the transaction.

Gains and losses resulting from foreign intercompany transactions are included as a component of net income or loss each reporting period unless the transactions are of a long-term-investment nature and settlement is not planned or anticipated in the foreseeable future, in which case the gains and losses are recorded as a component of Accumulated other comprehensive income or loss in the Consolidated Balance Sheets. Foreign currency transaction losses of $1.5 million and $0.9 million were recorded for 2023 and 2022, respectively, as a component of Other income (expense) in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Treasury Stock — The Company repurchased 138,725 shares of its common stock during 2023 and 108,178 shares of its common stock during 2022 through its previously announced stock repurchase plan. The Company repurchased 11,378 shares of its common stock in 2023 and 24,163 shares of its common stock in 2022 from employees upon the vesting of restricted stock to offset the income taxes owed by those employees. The Company accounts for treasury stock using the cost method and includes treasury stock as a component of stockholders’ equity. The cost of the common stock repurchased during 2023 and held in treasury was $3.9 million.

Segment Information — ASC 280, Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision-maker (“CODM”) is the Chief Executive Officer of DSG.

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The Company has determined it has four operating segments: (i) Lawson, (ii) Gexpro Services, (iii) TestEquity and (iv) All Other. The Company’s three reportable segments include (i) Lawson, (ii) Gexpro Services and (iii) TestEquity. The Company’s CODM reviews the operating results of the segments for the purpose of allocating resources and evaluating financial performance.

The reporting segments follow the same accounting policies used in the preparation of the Company’s consolidated financial statements. See Note 14 – Segment Information for further details.

Acquisitions — The Company recognizes identifiable assets acquired and liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions for the purchase price allocation process to value assets acquired and liabilities assumed at the acquisition date, the estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

Fair Value Measurements — The Company applies the guidance in ASC 820, Fair Value Measurements to account for financial assets and liabilities measured on a recurring basis. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are described below:

Level 1 - Unadjusted quoted prices for identical assets and liabilities in active markets.
Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3 - Unobservable inputs that are supported by little or no market activity, may be derived from internally developed methodologies based on management's best estimate of fair value and that are significant to the fair value of the asset or liability.

The carrying amount of accounts receivable, accounts payable, accrued expenses and other working capital balances are considered a reasonable estimate of their fair value due to the short-term maturity of these instruments. The carrying amount of debt is also considered to be a reasonable estimate of the fair value based on the nature of the debt and that the debt bears interest at the prevailing market rate for instruments with similar characteristics. The Company’s earnout derivative liability and debt are recorded at fair value on a recurring basis and were estimated using Level 3 inputs.

Earnout Derivative Liability— The Company recorded an earnout derivative liability for the future contingent equity shares related to the TestEquity Holdback Shares and the Gexpro Services Holdback Shares provisions within the Merger Agreements. The contingently issuable shares are not indexed to DSG common stock and, therefore, are accounted for as liability classified instruments in accordance with ASC 815-40, Contracts in Entity’s Own Equity, as the events that determine the number of contingently issuable shares required to be released or issued, as the case may be, include events that are not solely indexed to the fair value of DSG common stock. The contingently issuable shares were initially measured at the Merger Date and were subsequently measured at each reporting date until settled, or when they met the criteria for equity classification. Changes in the fair value of the earnout derivative liability are recorded as a component of Change in fair value of earnout liability in the Consolidated Statements of Operations and Comprehensive Income (Loss).

The Company reassesses the classification of these derivative liabilities for earnout arrangements each balance sheet date. If the contingencies are resolved for the issuable shares, the earnout derivative liability is reclassified from the liability to equity as of the date of the event that caused the contingencies to be met. The earnout derivative liability is measured at fair value immediately prior to the reclassification to equity. If the earnout derivative liability is reclassified from a liability to equity, gains or losses recorded to account for the liability at fair value during the period that the contract was classified as a liability are not reversed.

The contingently issuable shares are included in the denominator of the basic earnings per share calculation as of the date that all necessary conditions have been satisfied (i.e., when issuance of the shares is no longer contingent). For diluted
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earnings per share, the contingently issuable shares are included in the denominator of the diluted earnings per share calculation as of the beginning of the interim period in which the conditions are satisfied and the earnout arrangements have been resolved. See Note 12 – Earnings Per Share for further information.

Use of Estimates— Preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported for service revenue, service cost, allowance for doubtful accounts, inventory write-offs, goodwill and intangible assets valuation, stock-based compensation and income taxes in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates.

Supplier Concentrations — During 2023 and 2022, TestEquity purchases of inventory from one unrelated supplier accounted for 5.4% and 10.3% of the Company's total inventory purchases, respectively.

Reclassifications— Certain prior period amounts have been reclassified to conform to the current period presentation, primarily relating to the presentation of accrued expenses and other liabilities. These reclassifications did not result in any changes to previously reported total assets, stockholder’s equity, and net income.

Recent Accounting Pronouncements - Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which revises the requirements for how an entity should measure credit losses on financial instruments. The pronouncement was effective for smaller reporting companies in fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and the new guidance will be applied on a prospective basis. The Company adopted this guidance January 1, 2023. The adoption had no material impact on the Company's financial condition, results of operations or cash flows.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an entity to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The pronouncement is effective in fiscal years beginning after December 15, 2022 and early adoption is permitted. The Company adopted this guidance on January 1, 2023. The adoption had no impact on the Company's financial condition, results of operations or cash flows and will be applied to business combinations on or after the adoption date.

Recent Accounting Pronouncements - Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The pronouncement is effective for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The adoption of ASU 2023-07 should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact that the adoption will have on its financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures to require greater disaggregation of income tax disclosures related to the income tax rate reconciliation and income taxes paid. The pronouncement is effective on a prospective basis for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of the adoption on its financial statement disclosures.

Note 3 – Business Acquisitions

Combination with TestEquity and Gexpro Services

On April 1, 2022, the Mergers were completed via all-stock merger transactions. Pursuant to the Merger Agreements, DSG issued an aggregate of 20.6 million shares of DSG common stock to the former owners of TestEquity and Gexpro Services. On March 20, 2023, an additional 3.4 million shares of DSG common stock were issued. Refer to Note 1 – Nature of Operations and Basis of Presentation for further information regarding the Mergers.

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The business combination of Lawson, TestEquity and Gexpro Services combines three value added complementary distribution businesses. Lawson is a distributor of specialty products and services to the industrial, commercial, institutional, and governmental MRO marketplace. TestEquity is a distributor of parts and services to the industrial, commercial, institutional and governmental electronics manufacturing and test and measurement market. Gexpro Services is a provider of supply chain solutions, specializing in developing and implementing VMI and kitting programs to high-specification manufacturing customers. Gexpro Services provides critical products and services to customers throughout the lifecycle of highly technical OEM products. Refer to Note 1 – Nature of Operations and Basis of Presentation for more information on the nature of operations for these businesses.

The Mergers were accounted for as a reverse merger under the acquisition method of accounting for business combinations, whereby TestEquity and Gexpro Services were identified as the accounting acquirers and were treated as a combined entity for financial reporting purposes, and DSG was identified as the accounting acquiree. Accordingly, under the acquisition method of accounting, the purchase price was allocated to DSG's tangible and identifiable intangible assets acquired and liabilities assumed, based on their estimated acquisition-date fair values. These estimates were determined through established and generally accepted valuation techniques.

Allocation of Consideration Exchanged

Under the acquisition method of accounting, the consideration exchanged was calculated as follows:
(in thousands, except share data)April 1, 2022
Number of DSG common shares18,240,334
DSG common stock closing price per share on March 31, 2022$19.27 
Fair value of shares exchanged$351,491 
Other consideration(1)
1,910 
Total consideration exchanged$353,401 
(1)    Fair value adjustment of stock-based compensation awards.

Due to the publicly traded nature of shares of DSG common stock, the equity issuance of shares of DSG common stock based on this value was considered to be a more reliable measurement of the fair market value of the transaction compared to the equity interests of the accounting acquirer.

The allocation of consideration exchanged to the tangible and identifiable intangible assets acquired and liabilities assumed was based on estimated fair values as of the Merger Date. The accounting for the Mergers was complete as of December 31, 2022. Goodwill generated from the Mergers is not deductible for tax purposes.

The following table summarizes the allocation of consideration exchanged to the estimated fair values of assets acquired and liabilities assumed at the Merger Date after applying measurement period adjustments:
(in thousands)Final Purchase Price Allocation
Current assets$148,308 
Property, plant and equipment57,414 
Right of use assets18,258 
Other intangible assets119,060 
Deferred tax liability, net of deferred tax asset(19,394)
Other assets18,373 
Current liabilities(71,165)
Long-term obligations(25,746)
Lease and financing obligations(28,827)
Derivative earnout liability(43,900)
Goodwill181,020 
Total consideration exchanged$353,401 
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The allocation of consideration exchanged to other intangible assets acquired is as follows:
(in thousands)Fair Value
Estimated Life
(in years)
Customer relationships$76,050 19
Trade names43,010 8
Total other intangible assets$119,060 

Other Acquisitions

DSG and its operating companies acquired other businesses during the years ended December 31, 2023 and 2022. The acquisitions were accounted for under ASC 805, the acquisition method of accounting. For each acquisition, the allocation of consideration exchanged to the assets acquired and liabilities assumed was based on estimated acquisition-date fair values.

Purchase of HIS Company, Inc.

On June 8, 2023, DSG acquired all of the issued and outstanding capital stock of HIS Company, Inc., a Texas corporation ("Hisco" and the "Hisco Transaction"), a distributor of specialty products serving industrial technology applications, pursuant to a Stock Purchase Agreement dated March 30, 2023 (the "Purchase Agreement"). In connection with this transaction, DSG combined the operations of TestEquity and Hisco, further expanding the product and service offerings at TestEquity, as well as all of our operating businesses under DSG.

Hisco operates in 38 locations across North America, including its Precision Converting facilities that provide value-added fabrication and its Adhesive Materials Group that provides an array of custom repackaging solutions. Hisco offers customers a broad range of products, including adhesives, chemicals and tapes, as well as specialty materials such as electrostatic discharge, thermal management materials and static shielding bags. Hisco also offers vendor-managed inventory and Radio Frequency Identification ("RFID") programs with specialized warehousing for chemical management, logistics services and cold storage.

The total purchase consideration exchanged for the Hisco Transaction was $267.3 million, net of cash acquired of $12.2 million, with a potential additional earn-out payment subject to Hisco achieving certain performance targets. Refer to Note 8 – Earnout Liabilities for additional information on the earn-out. DSG will also pay $37.5 million in cash or DSG common stock in retention bonuses to certain Hisco employees that remain employed with Hisco or its affiliates for at least twelve months after the closing of the Hisco Transaction. For the year ended December 31, 2023, $22.8 million was recorded as compensation expense over the service period for the retention bonuses as a component of Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss).

DSG funded the Hisco Transaction with borrowings under its 2023 Amended Credit Agreement (as defined below) and proceeds raised from the Rights Offering (as defined below). Refer to Note 9 – Debtfor information about the 2023 Amended Credit Agreement and Note 11 – Stockholders' Equity for details on the Rights Offering.

The Purchase Agreement allowed certain eligible Hisco employees to invest all or a portion of their respective closing payment in DSG common stock at $22.50 per share, up to an aggregate value of DSG common stock issued to such eligible Hisco employees of $25.0 million. During 2023, the Company issued 144,608 shares of DSG common stock to the eligible Hisco employees and received approximately $3.3 million. During 2023, approximately $0.4 million was recorded as compensation expense for the discount between the prevailing market price of the DSG common stock on the date of purchase and the purchase price of $22.50 per share as a component of Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss).

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The following table summarizes the allocation of consideration exchanged to the estimated fair values of assets acquired and liabilities assumed, including the allocation to other intangible assets acquired:
Hisco
(in thousands)June 8, 2023
Acquisition Date		Measurement Period AdjustmentsAdjusted Total
Accounts Receivable(1)
$66,792 $(2,269)$64,523 
Inventory61,300 (645)60,655 
Other current assets3,858 350 4,208 
Property, plant and equipment48,326 — 48,326 
Right of use assets21,102 1,188 22,290 
Other intangible assets:
Customer relationships41,800 (1,800)40,000 
Trade names25,600 (300)25,300 
Deferred tax liability, net of deferred tax asset(2,544)81 (2,463)
Other assets2,495 — 2,495 
Accounts payable(16,689)— (16,689)
Lease liabilities(22,372)293 (22,079)
Accrued expenses and other liabilities(8,961)(289)(9,250)
Goodwill49,718 232 49,950 
Total purchase consideration exchanged, net of cash acquired$270,425 $(3,159)$267,266 
Cash consideration$252,007 $— $252,007 
Deferred consideration(2)
12,418 2,741 15,159 
Contingent consideration6,000 (5,900)100 
Total purchase consideration exchanged, net of cash acquired$270,425 $(3,159)$267,266 
(1)    Accounts receivable had an estimated fair value of $64.5 million and a gross contractual value of $66.8 million. The difference represents the Company’s best estimate of the contractual cash flows that will not be collected.
(2)    The Company paid $7.8 million of the Hisco deferred consideration during 2023.

Certain estimated values for the Hisco Transaction, including the valuation of intangibles, property, plant and equipment, contingent consideration, and income taxes (including deferred taxes and associated valuation allowances), are not yet finalized, and the preliminary purchase price allocation is subject to change as the Company completes its analysis of the fair value at the date of acquisition. The final valuation will be completed within the one-year measurement period following the acquisition date, and any adjustments will be recorded in the period in which the adjustments are determined.

Following the initial fair value measurement, the Company updated the purchase price allocation for Hisco primarily related to the ongoing review of the opening balance sheets and contractual working capital adjustments and revised certain assumptions used in estimating the fair value of the contingent consideration. The adjustments to these balances resulted in a $0.2 million increase to goodwill and a $3.2 million decrease to the total purchase consideration, net of cash acquired.
The customer relationships and trade names intangibles assets have estimated useful lives of 12 years and 8 years, respectively. As a result of the Hisco Transaction, the Company recorded tax deductible goodwill of $41.4 million in 2023 that may result in a tax benefit in future periods and is primarily attributable to the benefits we expect to derive from expected synergies including expanded product and service offerings and cross-selling opportunities.

Purchases of Other Companies in 2022

During the year ended December 31, 2022, TestEquity acquired Interworld Highway, LLC, National Test Equipment, and Instrumex, and Gexpro Services acquired Resolux ApS ("Resolux") and Frontier Technologies Brewton, LLC and Frontier Engineering and Manufacturing Technologies, Inc. ("Frontier"). The consideration exchanged for these acquired businesses included various combinations of cash and sellers' notes. The accounting for each acquisition was completed within the one-year measurement periods following the respective acquisition dates and any adjustments were recorded in the
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period in which the adjustments were determined. The purchase consideration for each business acquired and the allocation of the consideration exchanged to the estimated fair values of assets acquired and liabilities assumed is summarized below:
(in thousands)Interworld Highway, LLCResoluxFrontierNational Test EquipmentInstrumex
Acquisition dateApril 29, 2022January 3, 2022March 31, 2022June 1, 2022December 1, 2022Total
Current assets$15,018 $10,210 $2,881 $2,187 $3,495 $33,791 
Property, plant and equipment313 459 1,189 642 30 2,633 
Right of use assets— 1,125 9,313 — — 10,438 
Other intangible assets:
Customer relationships6,369 11,400 9,300 2,100 800 29,969 
Trade names4,600 6,100 3,000 — — 13,700 
Other assets10 86 — — 14 110 
Accounts payable(8,856)(3,058)(778)(196)(1,305)(14,193)
Current portion of long-term debt— — — (2,073)— (2,073)
Accrued expenses and other liabilities— (4,747)(1,462)(1,171)(626)(8,006)
Lease liabilities— (1,125)(9,313)— — (10,438)
Long-term debt— — — — (2,105)(2,105)
Goodwill37,236 10,305 11,544 5,703 1,989 66,777 
Total purchase consideration exchanged, net of cash acquired$54,690 $30,755 $25,674 $7,192 $2,292 $120,603 
Cash consideration$54,690 $30,755 $25,674 $6,023 $1,818 $118,960 
Seller's notes— — — 1,169 — 1,169 
Deferred consideration— — — — 474 474 
Total purchase consideration exchanged, net of cash acquired$54,690 $30,755 $25,674 $7,192 $2,292 $120,603 

The consideration for the Frontier acquisition includes a potential earn-out payment of up to $3.0 million based upon the achievement of certain milestones and relative thresholds during the earn out measurement period which ends on December 31, 2024. Refer to Note 8 – Earnout Liabilities for additional information on the earn-out.

During 2023, the Company completed the purchase price allocation for Instrumex with adjustments to accrued expenses and other liabilities and long-term debt based on the final fair value measurements. The adjustments to these balances resulted in a $0.9 million increase to goodwill and a $1.6 million decrease to the total purchase consideration, net of cash acquired.

As a result of acquisitions completed in 2022, the Company recorded tax deductible goodwill of $53.6 million in 2022 that may result in a tax benefit in future periods.

Unaudited Pro Forma Information

The following table presents estimated unaudited pro forma consolidated financial information for DSG as if the Mergers and other acquisitions disclosed above occurred on January 1, 2022 for the acquisition completed during 2023 and January 1, 2021 for the acquisitions completed during 2022. The unaudited pro forma information reflects adjustments including amortization on acquired intangible assets, interest expense, and the related tax effects. This information is presented for informational purposes only and is not necessarily indicative of future results or the results that would have occurred had the Mergers and other acquisitions been completed on the date indicated.
Year Ended December 31,
(in thousands)20232022
Revenue$1,752,465 $1,753,939 
Net income(37,114)(6,264)

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Actual Results of Business Acquisitions

The following table presents actual results attributable to our business combinations that were included in the consolidated financial statements for the years ended December 31, 2023 and 2022. The 2023 and 2022 results only reflect the results attributable to the acquisitions completed in those respective years. The results of DSG's legacy Lawson business are included only subsequent to the April 1, 2022 Merger Date, and the results for other acquisitions are only included subsequent to their respective acquisition dates provided above.
Year Ended December 31, 2023Year Ended December 31, 2022
(in thousands)LawsonOther AcquisitionsTotalLawsonOther AcquisitionsTotal
Revenue$— $229,358 $229,358 $373,738 $151,217 $524,955 
Net Income$— $(14,478)$(14,478)$15,283 $8,670 $23,953 

The Company incurred transaction and integration costs related to the Mergers and other completed and contemplated acquisitions of $11.6 million for the year ended December 31, 2023 and $15.4 million for the year ended December 31, 2022, which are included in Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Note 4 – Revenue Recognition

Disaggregation of Revenue

The Company’s revenue is primarily comprised of product sales to customers. The Company has disaggregated revenue by geographic area and by segment as it most reasonably depicts the amount, timing and uncertainty of revenue and cash flows generated from our contracts with customers. Disaggregated consolidated revenue by geographic area (based on the location to which the product is shipped to):
Year Ended December 31,
(in thousands)20232022
United States$1,253,401 $932,418 
Canada141,125 118,722 
Europe79,643 51,631 
Pacific Rim13,515 10,768 
Latin America74,577 34,202 
Other9,841 3,681 
Intersegment revenue elimination(1,700)— 
Total revenue$1,570,402 $1,151,422 

See Note 14 – Segment Informationfor disaggregation of revenue by segment.

Rental Revenue

TestEquity rents new and used electronic test and measurement equipment to customers in multiple industries. Lawson leases parts washer machines to customers. This leased equipment is included in Rental equipment, net in the Consolidated Balance Sheets, and rental revenue is included in Revenue in the Consolidated Statements of Operations and Comprehensive Income (Loss). The unearned rental revenue related to customer prepayments on equipment leases was nominal at December 31, 2023 and December 31, 2022.

Rental revenue from operating leases:
Year Ended December 31,
(in thousands)20232022
Revenue from operating leases$17,186 $17,675 

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Note 5 – Supplemental Financial Statement Information

Restricted Cash

The Company has agreed to maintain restricted cash of $15.7 million under agreements with outside parties. An escrow account of $12.5 million was established in conjunction with the Hisco Transaction, to be released upon Hisco meeting certain working capital and other post-closing requirements as of the one year post-acquisition date with a balance of $7.3 million at December 31, 2023. The Company is restricted from withdrawing this balance without the prior consent of the sellers. The remaining restricted cash balance of $8.4 million represents collateral for certain borrowings under the 2023 Amended Credit Agreement, and the Company is restricted from withdrawing this balance without the prior consent of the respective lenders.

Property, Plant and Equipment, net

Components of property, plant and equipment, net were as follows:
December 31,
(in thousands)20232022
Land$16,916 $9,578 
Buildings and improvements50,376 27,199 
Machinery and equipment48,844 26,948 
Capitalized software9,148 7,889 
Furniture and fixtures11,022 6,346 
Vehicles1,738 1,713 
Construction in progress(1)
6,025 3,140 
Total144,069 82,813 
Accumulated depreciation and amortization(30,258)(18,418)
Property, plant and equipment, net$113,811 $64,395 
(1)    Construction in progress primarily relates to upgrades to certain of the Company's information technology systems that we expect to place in service in the next 12 months.

Depreciation expense for property, plant and equipment was $13.1 million in 2023 and $6.5 million in 2022. Amortization expense for capitalized software was $2.6 million in 2023 and $1.6 million in 2022.

Rental Equipment, net

Rental equipment, net consisted of the following:
December 31,
(in thousands)20232022
Rental equipment$52,387 $63,184 
Accumulated depreciation(27,812)(36,045)
Rental equipment, net$24,575 $27,139 

Depreciation expense included in cost of sales for rental equipment was $7.6 million and $8.0 million for 2023 and 2022, respectively. Refer to Note 4 – Revenue Recognition for a discussion on the Company's activities as lessor.

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Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:
December 31,
(in thousands)20232022
Accrued compensation$25,371 $24,094 
Accrued severance and acquisition related retention bonus21,128 927 
Accrued and withheld taxes, other than income taxes8,661 4,885 
Deferred acquisition payments and accrued earnout liabilities7,513 1,383 
Accrued stock-based compensation5,573 3,340 
Accrued customer rebates5,473 5,053 
Accrued interest3,301 1,775 
Accrued income taxes1,994 731 
Accrued health benefits1,728 1,306 
Deferred revenue810 2,313 
Other15,689 16,870 
Total accrued expenses and other current liabilities$97,241 $62,677 

Other Liabilities

Other liabilities consisted of the following:
December 31,
(in thousands)20232022
Security bonus plan$8,666 $9,651 
Deferred compensation11,041 9,962 
Other5,736 4,036 
Total other liabilities$25,443 $23,649 

Security Bonus Plan

The Company has a security bonus plan which was previously created for the benefit of its Lawson independent sales representatives, under the terms of which participants are credited with a percentage of their annual net commissions. The aggregate amounts credited to participants’ accounts vest 25% after five years, and an additional 5% vests each year thereafter upon qualification for the plan. On January 1, 2013, the Company converted all of its Lawson U.S. independent sales representatives to employees. The security bonuses for those converted employees continue to vest, but their accounts are no longer credited with a percentage of net commissions. For financial reporting purposes, amounts are charged to operations over the vesting period. Expenses incurred for the security bonus plan were $0.2 million for the year ended December 31, 2023. The security bonus plan is partially funded by an $8.2 million investment in the cash surrender value in life insurance of certain employees which is included as a component of Cash value of life insurance in the Consolidated Balance Sheets. As of December 31, 2023, the $8.9 million liability is primarily included in the Security bonus plan in the Consolidated Balance Sheets with the remaining portion included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

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Note 6 – Goodwill and Intangible Assets

Goodwill

Changes in the carrying amount of goodwill by segment were as follows:
(in thousands)LawsonTestEquityGexpro ServicesAll OtherTotal
Balance at December 31, 2021$— $70,112 $34,099 $— $104,211 
Acquisitions156,133 43,992 21,849 24,887 246,861 
Impact of foreign exchange rates(360)— (527)(2,137)(3,024)
Balance at December 31, 2022155,773 114,104 55,421 22,750 348,048 
Acquisitions(1)
— 50,886 — — 50,886 
Impact of foreign exchange rates142 — 322 527 991 
Balance at December 31, 2023$155,915 $164,990 $55,743 $23,277 $399,925 
(1)    Refer to Note 3 – Business Acquisitions for information related to measurement period adjustments.

Intangible Assets

The gross carrying and accumulated amortization for definite-lived intangible assets were as follows:
December 31, 2023December 31, 2022
(in thousands)Gross Carrying AmountAccumulated AmortizationNet Carrying ValueGross Carrying AmountAccumulated AmortizationNet Carrying Value
Trade names$117,881 $(30,093)$87,788 $92,286 $(17,401)$74,885 
Customer relationships233,513 (71,215)162,298 192,934 (44,481)148,453 
Other (1)
8,011 (4,263)3,748 7,961 (3,305)4,656 
Total$359,405 $(105,571)$253,834 $293,181 $(65,187)$227,994 
(1)    Other primarily consists of non-compete agreements.

Amortization expense for definite-lived intangible assets was $40.3 million in 2023 and $29.1 million in 2022. Amortization expense related to intangible assets was recorded in Selling, general and administrative expenses. The remaining weighted-average useful lives of intangible assets as of December 31, 2023 was 3.9 years for trade names and 4.8 years for customer relationships.

The estimated aggregate amortization expense for each of the next five years and thereafter are as follows:
(in thousands)Amortization
2024$42,875 
202539,180 
202636,167 
202731,305 
202827,192 
Thereafter77,115 
Total$253,834 

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Note 7 – Leases

The Company leases property used for warehousing, distribution centers, office space, branch locations, equipment and vehicles. The expenses related to our leasing activity for the years ended December 31, 2023 and 2022 was as follows (in thousands):
Year Ended December 31,
Lease TypeClassification20232022
Operating Lease Expense (1)
Operating expenses$21,131 $15,151 
Financing Lease AmortizationOperating expenses546 466 
Financing Lease InterestInterest expense93 41 
Financing Lease Expense639 507 
Net Lease Cost$21,770 $15,658 
(1)    Includes short term lease expense, which is immaterial.

The value of net assets and liabilities related to our operating and finance leases as of December 31, 2023 and December 31, 2022 was as follows (in thousands):
December 31,
Lease Type20232022
Total ROU operating lease assets$76,340 $46,755 
Total ROU financing lease assets
1,560 1,519 
Total lease assets$77,900 $48,274 
Total current operating lease obligation$13,010 $9,480 
Total current financing lease obligation539 484 
Total current lease obligations$13,549 $9,964 
Total long term operating lease obligation$66,234 $38,898 
Total long term financing lease obligation831 930 
Total long term lease obligation$67,065 $39,828 

The value of lease liabilities related to our operating and finance leases as of December 31, 2023 was as follows (in thousands):
Maturity Date of Lease LiabilitiesOperating LeasesFinancing LeasesTotal
2024$18,555 $615 $19,170 
202518,299 435 18,734 
202614,488 344 14,832 
202712,371 117 12,488 
202810,440 4 10,444 
Thereafter29,841 1 29,842 
Total lease payments103,994 1,516 105,510 
Less: Interest(24,750)(146)(24,896)
Present value of lease liabilities$79,244 $1,370 $80,614 

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The weighted average lease terms and interest rates of leases held as of December 31, 2023 and 2022 were as follows:
Year Ended December 31,
20232022
Operating LeasesFinance LeasesOperating LeasesFinance Leases
Weighted average remaining lease term6.6 years2.8 years5.6 years3.1 years
Weighted average interest rate7.8%7.1%7.1%6.6%

The cash outflows of leasing activity for the years ended December 31, 2023 and 2022 were as follows (in thousands):
Year Ended December 31,
Cash Flow SourceClassification20232022
Operating cash flows from operating leasesOperating activities$(15,516)$(12,149)
Operating cash flows from financing leasesOperating activities$(242)$(184)
Financing cash flows from financing leasesFinancing activities$(515)$(429)

Refer to Note 4 – Revenue Recognition for a discussion on the Company's activities as lessor.

Note 8 – Earnout Liabilities

Combination with TestEquity and Gexpro Services

On the Merger Date, the Company recorded an earnout derivative liability for the two earnout provisions within the Merger Agreements. The Company estimated the initial fair value of the earnout derivative liability based on an aggregate of 2,324,000 additional shares available to be issued under the two earnout provisions of the Merger Agreements. The aggregate of 2,324,000 shares was comprised of 1,400,000 shares of DSG common stock that were contingently issuable to (or forfeitable by) the TestEquity Equityholder and 924,000 shares of DSG common stock that were contingently issuable to (or forfeitable by) the Gexpro Services Stockholder, in each case as of the Merger Date. The additional 1,076,000 shares that were potentially issuable as of the Merger Date under the earnouts were not recorded as an earnout derivative liability as the acquisition contingency for these shares was determined to have been met at the Merger Date.

The Company's earnout derivative liability was classified as a Level 3 instrument and was measured at fair value on a recurring basis. The fair value of the earnout derivative liability was measured using the Monte Carlo simulation valuation model using a distribution of potential outcomes on a monthly basis for the year ended December 31, 2022. Inputs to that model included the expected time to liquidity, the risk-free interest rate over the term, expected volatility based on representative peer companies and the estimated fair value of the underlying class of common stock. The significant unobservable inputs used in the fair value measurement of the earnout derivative liability were the fair value of the underlying stock at the valuation date and the estimated term of the earnout arrangement periods. Generally, increases (decreases) in the fair value of the underlying stock and estimated term would result in a directionally similar impact to the fair value measurement.

The estimated aggregate fair value of the earnout derivative liability recorded on the April 1, 2022 Merger Date was $43.9 million, with an offsetting entry to additional paid-in capital. As of April 29, 2022 and December 31, 2022, 1,400,000 and 924,000 of the 2,324,000 shares, respectively, were reclassified to equity, as the contingencies had been determined to have been met. There was no remaining earnout derivative liability at December 31, 2022. Immediately prior to the reclassifications, the respective shares were remeasured to fair value. For the year ended December 31, 2022, the Company recorded income of $0.3 million as a component of Change in fair value of earnout liabilities in the Consolidated Statements of Operations and Comprehensive Income (Loss) due to changes in the fair value of the earnout derivative liability. As the remaining additional shares had been reclassified to equity as of December 31, 2022, there was no change in fair value for the year ended December 31, 2023. See Fair Value Measurements in Note 2 – Summary of Significant Accounting Policies for further information.

On March 20, 2023, all of the 3.4 million shares of DSG common stock available to be issued under the earnout provisions within the Merger Agreements were issued in accordance with the two earnout provisions within the Merger Agreements.

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Hisco Acquisition

The Hisco Transaction includes a potential earn-out payment of up to $12.6 million, subject to Hisco achieving certain performance targets. The earn-out payment is calculated based on the gross profit of Hisco and its affiliates for the twelve months ending October 31, 2023, subject to certain adjustments and exclusions set forth in the Purchase Agreement. The fair value of the contingent consideration arrangement was classified as a Level 3 instrument and was determined using a probability-based scenario analysis approach. As of June 8, 2023 (the Hisco Transaction date) and December 31, 2023, the fair value of the earn-out was $0.1 million and $0.0 million, respectively, with amounts recorded in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

Frontier Acquisition

The consideration for the Frontier acquisition includes a potential earn-out payment of up to $3.0 million based upon the achievement of certain milestones and relative thresholds during the earn out measurement period which ends on December 31, 2024, with payments made annually beginning in 2023 and ending in 2025. During the first quarter of 2023, a $1.0 million earn-out payment was made based on the achievement of certain milestones in 2022. The fair value of the contingent consideration arrangement was classified as a Level 3 instrument and was determined using a probability-based scenario analysis approach. As of March 31, 2022 (the Frontier acquisition date), December 31, 2022 and December 31, 2023, the fair value of the earn-out was $0.9 million, $1.7 million and $0.0 million, respectively, with amounts recorded in Accrued expenses and other current liabilities and Other liabilities in the Consolidated Balance Sheets. The Company recorded income of $0.7 million for changes in the fair value of the earn-out liability for the year ended December 31, 2023 as a component of Change in fair value of earnout liabilities in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Note 9 – Debt

The Company's outstanding long-term debt was comprised of the following:
December 31,
(in thousands)20232022
Senior secured revolving credit facility$— $122,000 
Senior secured term loan228,125 243,750 
Senior secured delayed draw term loan46,875 50,000 
Incremental term loan297,375 — 
Other revolving line of credit2,301 1,352 
Total debt574,676 417,102 
Less: current portion of long-term debt(32,551)(16,352)
Less: deferred financing costs(6,244)(4,925)
Total long-term debt$535,881 $395,825 

2023 Amended Credit Agreement

On June 8, 2023, the Company and certain of its subsidiaries entered into the First Amendment to Amended and Restated Credit Agreement (the “First Amendment” and as amended, the "2023 Amended Credit Agreement"), which amended and replaced the previous credit agreement, dated as of April 1, 2022.

The 2023 Amended Credit Agreement provides for (i) a $200 million senior secured revolving credit facility, with a $25 million letter of credit sub-facility and a $10 million swingline loan sub-facility, (ii) a $250 million senior secured initial term loan facility, (iii) a $305 million incremental term loan, (iv) a $50 million senior secured delayed draw term loan facility and (v) the Company to increase the commitments thereunder from time to time by up to $200 million in the aggregate, subject to, among other things, the receipt of additional commitments from existing and/or new lenders and pro forma compliance with the financial covenants in the 2023 Amended Credit Agreement.

On June 8, 2023, in connection with the Hisco Transaction, the Company borrowed the $305 million under the
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incremental term loan. These borrowings were used, among other things, to partially fund the Hisco Transaction, to repay certain existing indebtedness of Hisco and to pay fees and expenses incurred in connection with the Hisco Transaction and the First Amendment. Refer to Note 3 – Business Acquisitions for further details about the Hisco Transaction.

Net of outstanding letters of credit, there was $198.3 million of borrowing availability under the revolving credit facility as of December 31, 2023.

The 2023 Amended Credit Agreement requires that the proceeds of any revolving credit facility loans be used for working capital and general corporate purposes (including, without limitation, permitted acquisitions), and requires that the proceeds of any delayed draw term loan facility be used solely to finance the payment of consideration for acquisitions permitted under the 2023 Amended Credit Agreement, and for any fees, costs and expenses incurred in connection therewith.

The loans under the 2023 Amended Credit Agreement bear interest, at the Company’s option, at a rate equal to (i) the Alternate Base Rate or the Canadian Prime Rate (each as defined in the 2023 Amended Credit Agreement), plus, in each case, an additional margin ranging from 0.0% to 1.75% per annum, depending on the total net leverage ratio of the Company and its restricted subsidiaries as of the most recent determination date under the 2023 Amended Credit Agreement or (ii) the Adjusted Term SOFR Rate or the CDOR Rate (each as defined in the 2023 Amended Credit Agreement), plus, in each case, an additional margin ranging from 1.0% to 2.75% per annum, depending on the total net leverage ratio of the Company and its restricted subsidiaries as of the most recent determination date under the 2023 Amended Credit Agreement.

The 2023 Amended Credit Agreement requires the Company to pay certain closing fees, arrangement fees, administration fees, commitment fees, ticking fees and letter of credit fees. These fees are reported as a component of Interest expense in the Consolidated Statements of Operations and Comprehensive Income (Loss) and vary depending on the total net leverage ratio as defined in the 2023 Amended Credit Agreement. Fees were nominal in both 2023 and 2022.

On June 8, 2023, deferred financing costs of $3.4 million were incurred in connection with the 2023 Amended Credit Agreement, and deferred financing costs of $4.0 million were incurred during 2022 in connection with the previous credit agreement. Deferred financing costs are amortized over the life of the debt instrument and reported as a component of Interest expense in the Consolidated Statements of Operations and Comprehensive Income (Loss). Amortization of deferred financing costs was $2.4 million and $1.9 million for 2023 and 2022, respectively. As of December 31, 2023, deferred financing costs net of accumulated amortization were $8.6 million of which $6.2 million are included in Long-term debt, less current portion, net (related to the senior secured term loan, senior secured delayed draw term loan and incremental term loan) and $2.3 million are included in Other assets (related to the senior secured revolving credit facility) in the Consolidated Balance Sheets.

Each of the loans under the 2023 Amended Credit Agreement matures on April 1, 2027, at which time all outstanding loans, together with all accrued and unpaid interest, must be repaid and the revolving credit facility commitments will terminate. Future maturities of long-term debt are $30.3 million per year payable in equal quarterly installments in 2024, 2025 and 2026, with the remaining balance of $481.6 million due in 2027 upon maturity. The Company is also required to prepay the term loans with the net cash proceeds from any disposition of certain assets (subject to reinvestment rights) or from the incurrence of any unpermitted debt. The Company may borrow, repay and reborrow the revolving loans until April 1, 2027, prepay any of the term loans, and terminate any of the commitments, in whole or in part, at any time without premium or penalty, subject to certain conditions and the reimbursement of certain lender costs in the case of prepayments of certain types of loans.

Subject to certain exceptions as set forth in the 2023 Amended Credit Agreement, the obligations of the Company and its U.S. subsidiaries under the 2023 Amended Credit Agreement are guaranteed by the Company and certain of the Company’s U.S. subsidiaries and the obligations of each of the Company’s Canadian subsidiaries under the 2023 Amended Credit Agreement are guaranteed by the Company and certain of its U.S. and Canadian subsidiaries.

Subject to certain exceptions as set forth in the 2023 Amended Credit Agreement, the obligations under the 2023 Amended Credit Agreement are secured by a first priority security interest in and lien on substantially all assets of the Company, each other borrower and each guarantor.

The 2023 Amended Credit Agreement contains various covenants, including financial maintenance covenants requiring the Company to maintain compliance with a consolidated minimum interest coverage ratio and a maximum total net leverage ratio, each determined in accordance with the terms of the 2023 Amended Credit Agreement. The 2023 Amended Credit
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Agreement contains various events of default (subject to exceptions, thresholds and grace periods as set forth in the 2023 Amended Credit Agreement). Under certain circumstances, a default interest rate will apply on all obligations at a rate equal to 2.0% per annum above the applicable interest rate. The Company was in compliance with all financial covenants as of December 31, 2023.

Previous Credit Agreements

2022 Amended and Restated Credit Agreement

On April 1, 2022, DSG and certain of its subsidiaries entered into an Amended and Restated Credit Agreement (the “2022 Credit Agreement”) by and among DSG, certain subsidiaries of DSG as borrowers or guarantors, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent. The 2022 Credit Agreement provided for (i) a $200 million senior secured revolving credit facility, with a $25 million letter of credit sub-facility and a $10 million swingline loan sub-facility, (ii) a $250 million senior secured initial term loan facility and (iii) a $50 million senior secured delayed draw term loan facility. In addition, the 2022 Credit Agreement permitted the Company to increase the commitments from time to time by up to $200 million in the aggregate, subject to, among other things, the receipt of additional commitments from existing and/or new lenders and pro forma compliance with the financial covenants in the Amended and Restated Credit Agreement.

On April 1, 2022, in connection with the Mergers, the Company borrowed the $250.0 million under the initial term loan facility and approximately $86.0 million of the revolving credit facility loans. These borrowings were used to 1) repay all obligations and refinance the Company’s previous credit agreement, 2) repay certain existing indebtedness of TestEquity and Gexpro Services and their respective subsidiaries, 3) pay fees and expenses in connection with the Mergers, and 4) finance the working capital needs and general corporate purposes of the Company. On April 29, 2022, the Company borrowed the $50.0 million available under the delayed draw term loan facility to finance the acquisition of Interworld Highway, LLC.

A $2.8 million loss on the extinguishment of debt for unamortized deferred financing costs was recorded in 2022 in connection with the payoff of previous indebtedness. The extinguishment is recorded in Loss on extinguishment of debt in the Consolidated Statements of Operations and Comprehensive Income (Loss).

On June 8, 2023, the 2022 Credit Agreement was replaced entirely with the 2023 Amended Credit Agreement discussed above.

Gexpro Services - January 3, 2022 Gexpro Services Credit Agreement

On January 3, 2022, Gexpro Services entered into a credit agreement ("2022 Gexpro Services Credit Agreement") with a financial institution under which Gexpro Services obtained an initial $137 million term loan ("2022 Gexpro Services Term Loan"), a $25 million revolving line of credit ("2022 Gexpro Services Revolver") and a delayed $83 million term loan ("2022 Gexpro Services Delayed Term Loan"). The proceeds of the 2022 Gexpro Services Term Loan and 2022 Gexpro Services Delayed Term Loan were used to fund the Resolux acquisition, repay all borrowings under the 2020 Gexpro Services Credit Agreements (as defined below) and seller’s promissory note from SIS acquisition (refer to Note 3 – Business Acquisitions for further details of these acquisitions). In connection with the 2022 Gexpro Services Credit Agreement, deferred financing costs of $7.4 million were incurred.

Gexpro Services - 2020 Gexpro Services Credit Agreements

On February 24, 2020, Gexpro Services entered into credit agreements under which Gexpro Services obtained a $60 million term loan a $15 million revolving line of credit. A loss on debt extinguishment of $0.6 million was recorded on January 3, 2022 in connection with the January 3, 2022 Gexpro Services Credit Agreement.

TestEquity - 2017 TestEquity Credit Agreement

On April 28, 2017, TestEquity entered into a credit agreement with a financial institution under which TestEquity obtained a $101 million term loan and a $15.0 million revolving line of credit. A loss on debt extinguishment of $0.2 million was recorded on April 1, 2022 in connection with the 2022 Credit Agreement executed in connection with the consummation of the Mergers.

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Note 10 – Stock-Based Compensation

The Company recorded stock-based compensation expense of $7.9 million for the year ended December 31, 2023 and $2.4 million for the year ended December 31, 2022 in Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss) and recognized a net tax benefit relating to stock-based compensation of $0.9 million and $2.1 million, respectively. A portion of the Company's stock-based awards are liability-classified. Accordingly, changes in the market value of DSG common stock may result in stock-based compensation expense or benefit in certain periods. A stock-based compensation liability of $5.6 million as of December 31, 2023 and $3.3 million as of December 31, 2022 was included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

Impact of Stock Split

The equity compensation plans contain anti-dilution provisions whereby in the event of any change in the capitalization of the Company (including in the event of a stock split), the number and type of awards underlying outstanding stock-based compensation awards must be adjusted, as appropriate, in order to prevent dilution or enhancement of rights. The impact of these provisions resulted in a modification of all outstanding stock-based compensation awards upon the Stock Split. As the fair value of the awards immediately after the Stock Split did not change when compared to the fair value of such awards immediately prior to the Stock Split, no incremental compensation costs were recognized as a result of such modifications. In addition, there was no change to the vesting conditions or classification of each of the outstanding stock-based compensation awards.

Equity Compensation Plans

On October 17, 2022, the Board of Directors approved and adopted the Distribution Solutions Group, Inc. Equity Compensation Plan, as amended and restated, effective October 17, 2022, and as amended November 10, 2022 (the “Amended and Restated Equity Plan”). The Amended and Restated Equity Plan provides for the grant of the Company appointed Mr. Kingnonqualified and incentive stock options, stock awards and stock units to serve as Presidentofficers and Chief Executive Officer of Lawson Products, Inc., effective May 1, 2022, which is in addition to his role as Chairman of the Boardemployees of the Company. Mr. King has acted as an investment manager responsibleThe Amended and Restated Equity Plan also provides for lower middle market investments in publicthe grant of option rights and private companies since 1994. Those private capital focused partnerships manage in excess of $2 billion of flexible capital focused on long-term investment strategiesrestricted stock to drive shareholder value through building more profitable and durable businesses. The investment team and their affiliates represent approximately 30% of the capital in the partnerships, and outside capital is predominantlynon-employee directors. Non-employee directors are limited to taxable investors with prior significant experience building businesses similar to those in which LKCM invests. In 2003, Mr. King established the LKCM Distribution Holdings advisory boardgrants of operating partners, key limited partners, and relevant thought leaders to support LKCM Capital Group and its affiliates’ investment activities in value-added distribution and related service offerings. In specialty distribution, Mr. King has Chaired and/or been the Managing Partner with direct controlling oversight of Lawson, TestEquity, Gexpro Services, Relevant Industrial Solutions, Critical Rental Solutions, Commercial Buildings Solution, Industrial Distribution Group (IDG), Rawson, and Golden State Medical Supply, and most recently added ERIKS North American assets, including Lewis-Goetz. He also has served in various capacities, including Chairman, on and alongside of many other boards of both public and private companies, as well as numerous not for profit and community organizations. Mr. King graduated from Princeton University, where he was a varsity athlete and today serves on the advisory board for the Princeton University Museum of Art. He also graduated from Harvard Business School, as well as Texas Christian University where he serves on the Executive Committee of Trustees, and chairs the Investment Committee with oversight over the Endowment, and previously chaired the Fiscal Affairs, and Audit and Risk Management committees. These professional experiences, along with Mr. King’s particular knowledge and expertise in finance and capital management, qualify him to serve as a Director.
Mark F. Moon
has served as President of MFM Advisory Services since 2016 and as an advisor and operating partner for Luther King Capital Management and Bertram Capital since 2016 and 2018, respectively. In 2016, Mr. Moon joined the Board of Directors for BearCom LLC, which is the largest value-added distributor of
two-way
radio communications and solutions. Mr.
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Moon also serves on the Board of Directors for TestEquity LLC, which is the premier value-added distributor of electronic test and measurement solutions and eMRO tools and supplies. Mr. Moon served forno more than thirty years with Motorola Solutions, Inc. from 1985 until 2016. During this time, he held a variety60,000 shares of leadership roles culminatingcommon stock in any calendar year and other than non-employee directors are limited to grants of no more than 500,000 shares of common stock in any calendar year. The Amended and Restated Equity Plan is administered by the responsibility for leading 10,000+ employees located in 100+ countries. Prior to his retirement, he served as President with responsibilities for the strategy of the company and leading all aspects of global operations including Sales and Marketing, Product Research and Development, Software and Services, and Supply Chain. In addition, Mr. Moon served as Chairman of the Board of Directors for Vertex Standard, as a member of the Board of Directors for the National Fallen Firefighters Foundation and as a member of the Advisory Board of the Georgia Institute of Technology’s School of Industrial and Systems Engineering where he was named to the Academy of Distinguished Engineering Alumni in 2014. These professional experiences, along with Mr. Moon’s particular knowledge and expertise in sales and marketing, global operations and supply chain, qualify him to serve as a Director.
Bianca A. Rhodes
has served as the President and Chief Executive Officer of Knight Aerospace Medical Systems, LLC, a global leader in custom air medical transport products, since 2014. Prior to that time, she founded CrossRhodes Consulting where she advised private enterprises on financial and operating issues helping them to raise capital and structure buyouts while also managing a family real estate business. Ms. Rhodes began her career as a commercial banker with the National Bank of Commerce in San Antonio and later joined TexCom Management Services, a computer leasing company. At TexCom she was instrumental in the sale of the Company to Intelogic Trace (NYSE:IT) where she became the CFO. Additionally, she has served as CFO of Kinetics Concepts Inc. (NASDAQ:KNCI), a global corporation that produces medical technology for wounds and wound healing. During her tenure there, she engineered a successful turnaround, significantly increasing the company’s value, prior to going private. These professional experiences, along with knowledge and experience acquired in managing distribution and technology firms, qualify Ms. Rhodes to serve as a Director.
EXECUTIVE OFFICER INFORMATION
Information with respect to executive officers of the Company is set forth in the section entitled “Executive Officers of the Registrant” included in Part I. Item 1. Business of the Original Form
10-K.
CORPORATE GOVERNANCE
The Audit Committee
The functions of the AuditCompensation Committee of the Board of Directors, include (i) reviewingor its designee, which as administrator of the plan, has the authority to select plan participants, grant awards, and determine the terms and conditions of the awards. As of December 31, 2023, the Company had approximately 1,161,687 shares of common stock still available under the Amended and Restated Equity Plan.

The Company also has a Stock Performance Rights Plan (“SPR Plan”) that provides for the issuance of Stock Performance Rights (“SPRs”) that allow non-employee directors, officers and key employees to receive cash awards, subject to certain restrictions, equal to the appreciation of DSG common stock. The SPR Plan is administered by the Compensation Committee of the Board of Directors.

Stock Performance Rights

SPRs entitle the recipient to receive a cash payment equal to the excess of the market value of DSG common stock over the SPR exercise price when the SPRs are surrendered. Expense, equal to the fair market value of the SPR at the date of grant and remeasured each reporting period, is recorded ratably over the vesting period. Compensation expense is included in Selling, general and administrative expense in the Consolidated Statements of Operations and Comprehensive Income (Loss). The outstanding SPRs were granted with approximately a seven year life and vest over one to three years beginning on the first anniversary of the date of the grant. The SPRs are liability classified and included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

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On December 31, 2023 and 2022, the SPRs outstanding were re-measured at fair value using the Black-Scholes valuation model. This model requires the input of subjective assumptions that may have a significant impact on the fair value estimate. The weighted-average fair value of SPRs outstanding as of December 31, 2023 and December 31, 2022 was $18.37 and $7.65 per SPR, respectively, using the following assumptions:
December 31,
20232022
Expected volatility41.1% to 45.9%43.4% to 52.2%
Risk-free rate of return4.5% to 5.3%4.4% to 4.7%
Expected term (in years)0.3 to 1.50.5 to 2.0
Expected annual dividend$0$0

The expected volatility was based on the historic volatility of the Company's stock price commensurate with the expected life of the SPR. The risk-free rate of return reflects the interest rate offered for zero coupon treasury bonds over the expected life of the SPR. The expected life represents the period of time that options granted are expected to be outstanding and was calculated using the simplified method allowed by the SEC, which approximates our historical experience. The estimated annual dividend was based on the recent dividend payout trend.

A liability of $4.9 million reflecting the estimated fair value of future pay-outs is included as a component of Accrued expenses and other liabilities in the Consolidated Balance Sheets.

Activity related to the Company’s proceduresSPRs during the year ended December 31, 2023 was as follows:
Number of SPRsWeighted Average Exercise PriceWeighted Average Remaining Contractual Term (in years)Aggregate Intrinsic Value (in millions)
Outstanding on December 31, 2022352,368 $7.65 
Granted— — 
Exercised(93,350)28.16 
Cancelled— — 
Outstanding on December 31, 2023259,018 18.37 1.5$4.6 
Exercisable on December 31, 2023259,018 $18.37 1.5$4.6 

The intrinsic value of SPRs exercised was $1.7 million for monitoring internal control2023 and $5.2 million for 2022. All SPRs for plan participants were fully vested prior to the Mergers, as such, there is no unrecognized compensation associated with any SPRs.

Restricted Stock Awards

Restricted stock awards ("RSAs") generally vest over financial reporting; (ii) overseeinga one to three year period beginning on the appointment, compensation, retention and oversightfirst anniversary of the date of the grant. Upon vesting, the vested RSAs are exchanged for an equal number of shares of DSG common stock. The participants have no voting or dividend rights with the RSAs. The RSAs are valued at the closing price of DSG common stock on the date of grant and the expense is recorded ratably over the vesting period.

Activity related to the Company’s independent auditors; (iii) reviewingRSAs during the scopeyear ended December 31, 2023 was as follows:
Restricted Stock AwardsWeighted Average Grant Date Fair Value
Outstanding on December 31, 2022113,174 $24.35 
Granted53,054 21.86 
Cancelled(13,810)25.89 
Exchanged for common shares(54,202)22.86 
Outstanding on December 31, 202398,216 $23.57 

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As of December 31, 2023, there was $0.7 million of total unrecognized compensation cost related to RSAs that will be recognized over a weighted average period of 1.6 years. The weighted average grant date fair value per share of awards granted during the year was $21.86 in 2023 and$18.75 in 2022. The fair value of RSAs exchanged for shares of DSG common stock during 2023 was $1.5 million and $0.5 million during 2022.

Market Stock Units

Market Stock Units ("MSUs") are exchangeable for between 0% to 150% of the DSG common shares at the end of the vesting period based on the trailing 60-day average closing price of DSG common stock. The value of the MSUs was determined using a geometric brownian motion model that, based on certain variables, generates a large number of random trials simulating the price of the DSG common stock over the measurement period. As of December 31, 2023 all MSUs are fully vested. The fair value of MSUs exchanged for shares of DSG common stock during 2023 was $0.6 million and $0.9 million during 2022.

Activity related to the Company’s MSUs during 2023 was as follows:
Number of Market Stock UnitsMaximum Shares Potentially IssuableWeighted Average Grant Date Fair Value
Outstanding on December 31, 2022162,936 234,586 $19.90 
Granted518 777 30.54 
Cancelled(32,732)(49,098)30.54 
Exchanged for common shares(14,615)(22,710)17.49 
Outstanding on December 31, 2023116,107 163,555 $17.25 

Stock Options

Stock options vest through the fifth anniversary from the grant date. Each stock option can be exchanged for one share of DSG common stock at the stated exercise price. Upon vesting, stock options are recognized as a component of equity. Activity related to the Company’s stock options during the year ended December 31, 2023 was as follows:
Number of Stock OptionsWeighted Average Exercise PriceWeighted Average Remaining Contractual Term (in years)Aggregate Intrinsic Value (in millions)
Outstanding on December 31, 2022576,000 $38.80 
Granted1,402,605 37.03 
Exercised— — 
Cancelled(98,538)33.89 
Outstanding on December 31, 20231,880,067 37.53 9.0$3.1 
Exercisable on December 31, 2023180,800 $29.74 4.9$1.7 

The weighted average exercise price per stock option granted was $37.03 for 2023 and $42.88 for 2022. Unrecognized compensation cost related to stock options as of December 31, 2023 was $9.3 million, which is expected to be recognized over a weighted-average period of 2.3 years. There were 1,699,267 unvested and 180,800 fully vested stock options outstanding on December 31, 2023 with a weighted average exercise price of $29.74. The intrinsic value of stock options exercised was $0.0 million during 2023 and $0.6 million during 2022.

The grant date fair value of the stock options issued for the year ended December 31, 2023 and 2022 was estimated using a Black-Scholes valuation model. The weighted average fair value assumptions used in the model were as follows:
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December 31,
20232022
Expected volatility45.2% to 45.6%43.7% to 44.6%
Risk-free rate of return3.6% to 4.5%2.7% to 3.1%
Expected term (in years)6.2 years6.5 years
Expected annual dividend$0$0

The expected volatility was based on the historic volatility of the Company's stock price commensurate with the expected life of the stock options. The risk-free rate of return reflects the interest rate offered for zero coupon treasury bonds over the expected life of the stock options. The expected life represents the period of time that options granted are expected to be outstanding and was calculated using the simplified method allowed by the SEC, which approximates our historical experience. The estimated annual dividend was based on the recent dividend payout trend.

Performance Awards

Performance Awards ("PAs") are exchangeable for between 0% to 150% of DSG common shares, or the equivalent amount in cash, based upon the achievement of certain financial performance metrics at the end of the vesting period. The PAs are liability classified and included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets. The intrinsic value of PAs exercised was $0.2 million during 2023 and $0.1 million during 2022. There was no unrecognized compensation cost related to PAs as of December 31, 2023.

Activity related to the Company’s PAs during the year ended December 31, 2023 was as follows:
Number of Performance AwardsMaximum Shares Potentially IssuableWeighted Average Grant Date Fair Value
Outstanding on December 31, 202243,826 65,739 $24.08 
Granted326 489 25.55 
Exercised(11,404)(17,106)21.54 
Cancelled(6,668)(10,002)20.85 
Outstanding on December 31, 202326,080 39,120 $25.70 

Note 11 – Stockholders' Equity

Stock Split

On August 15, 2023, DSG announced that its Board of Directors approved and declared the Stock Split which entitled each stockholder of record as of the close of business on August 25, 2023 to receive one additional share of DSG common stock for each share of DSG common stock then-held. The additional shares were distributed after the close of trading on August 31, 2023, and shares of DSG common stock began trading at the split-adjusted basis on September 1, 2023. Accordingly, all share and per share amounts presented herein have been retroactively adjusted to reflect the impact of the Stock Split. Stockholders’ equity has been retroactively adjusted, where applicable, to give effect to the Stock Split for all periods presented by reclassifying the par value of the additional shares issued in connection with the Stock Split to Common stock from Capital in excess of par value in the Consolidated Balance Sheets.

In order to implement the Stock Split, on August 31, 2023, DSG filed a Third Amended and Restated Certificate of Incorporation of DSG with the Secretary of State of the State of Delaware to increase the number of authorized shares of DSG common stock from 35,000,000 to 70,000,000, which became effective on that date. The Stock Split did not change the $1.00 par value of DSG common stock.

Rights Offering

On May 9, 2023, the Company commenced a subscription rights offering to raise gross proceeds of up to approximately $100 million (the "Rights Offering"). The Rights Offering provided one transferable subscription right for each share of DSG common stock held by holders of DSG common stock on record as of the close of business on May 1, 2023. Each
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subscription right entitled the holder to purchase 0.0525 shares of DSG common stock at a subscription price of $22.50 per share. The subscription rights were transferable, but were not listed for trading on any stock exchange or market. In addition, holders of subscription rights who fully exercised their subscription rights were entitled to oversubscribe for additional shares of DSG common stock, subject to proration.

The Rights Offering closed on May 30, 2023 and was fully subscribed (taking into account the exercise of over-subscription rights) and raised net proceeds of approximately $98.5 million and resulted in the issuance of 4,444,444 shares of DSG common stock, at a purchase price of $22.50 per share. The Company incurred transaction costs related to the issuance of DSG common stock for the Rights Offering of $1.5 million, which were recorded against Capital in excess of par value in the Consolidated Balance Sheets.

DSG used the proceeds from the Rights Offering, in combination with borrowings under the 2023 Amended Credit Agreement, to fund the Hisco Transaction.

Stock Repurchase Program

In 2019, the Board of Directors authorized a program pursuant to which the Company was authorized to repurchase up to $7.5 million of DSG common stock from time to time in open market transactions, privately negotiated transactions or by other methods. The Board of Directors increased the repurchase program by $5.0 million in November 2022, and $25.0 million in December 2023, bringing the total authorized to $37.5 million.

During 2023, the Company repurchased 138,725 shares of DSG common stock at an average cost of 26.09 per share for a total cost of $3.6 million. During 2022, the Company repurchased 108,178 shares of DSG common stock at an average cost of $17.93 per share for a total cost of $1.9 million. The remaining availability for stock repurchases under the program was $29.0 million at December 31, 2023.

Note 12 – Earnings Per Share

As a result of the Stock Split and Mergers discussed in Note 1 – Nature of Operations and Basis of Presentation, all historical per share data and number of shares and numbers of equity awards were retroactively adjusted. The following table provides the computation of basic and diluted earnings per share:
December 31,
(in thousands, except share and per share data)20232022
Basic income per share:
Net income (loss)$(8,967)$7,406 
Basic weighted average shares outstanding44,868,862 34,291,870 
Basic income (loss) per share of common stock$(0.20)$0.22 
Diluted income per share:
Net income (loss)$(8,967)$7,406 
Basic weighted average shares outstanding44,868,862 34,291,870 
Effect of dilutive securities— 794,722 
Diluted weighted average shares outstanding44,868,862 35,086,592 
Diluted income (loss) per share of common stock$(0.20)$0.21 
Anti-dilutive securities excluded from the calculation of diluted income per share424,934 496,000 

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Note 13 – Income Taxes

Income from operations before income taxes consisted of the following:
Year Ended December 31,
(in thousands)20232022
United States$(24,949)$910 
Foreign22,942 12,027 
Total$(2,007)$12,937 

Provision (benefit) for income taxes from operations consisted of the following:
Year Ended December 31,
(in thousands)20232022
Current income tax expense:
U.S. federal$4,961 $4,011 
U.S. state2,388 869 
Foreign7,639 3,057 
Total$14,988 $7,937 
Deferred income tax expense (benefit):
U.S. federal$(8,101)$(947)
U.S. state1,232 (73)
Foreign(1,159)(1,386)
Total$(8,028)$(2,406)
Total income tax expense (benefit):
U.S. federal$(3,141)$3,063 
U.S. state3,620 796 
Foreign6,481 1,672 
Total$6,960 $5,531 

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The reconciliation between the effective income tax rates and the statutory federal rates for operations are as follows:
Year Ended December 31,
20232022
Statutory Federal rate21.0 %21.0 %
Increase (decrease) resulting from:
Change in valuation allowance - current period activity(380.7)1.3 
Foreign rate differential6.2 4.0 
Stock compensation(5.0)(0.5)
Compensation deduction limitation(7.0)— 
State and local taxes, net67.1 4.5 
Life insurance(3.4)— 
Meals & entertainment(17.3)1.4 
Change in uncertain tax positions18.1 (2.9)
Provision to return differences(45.3)— 
GILTI, Section 78, FDII, and Section 250— 3.2 
Transaction costs— 8.3 
Branch income(81.6)— 
Earn Out Revaluation— 0.8 
Change in deferred balances79.4 — 
Other items, net1.7 1.7 
Provision for income taxes(346.8)%42.8 %

The effective tax rate for the year ended December 31, 2023 was (346.8)% compared to a 42.8% effective tax rate for the year ended December 31, 2022. The change in the year-over-year effective tax rate was primarily due to an increase in the partial valuation allowance against the Company's excess interest expense carryforward balance, state taxes, foreign income and a pre-tax loss in the current year. Relative to the U.S. statutory rate, the effective tax rate for the year ended December 31, 2023 was impacted by the items listed above.

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Deferred income tax assets and liabilities contain the following temporary differences:
December 31,
(in thousands)20232022
Deferred tax assets:
Federal & state NOL carryforward$10,158 $8,218 
Inventory reserve8,815 6,990 
Transaction costs673 1,620 
Stock based compensation3,602 2,531 
Accrued benefits & bonuses11,998 7,074 
Bad debt reserve977 496 
Section 163(j) limitation carryforward15,891 7,692 
ROU liabilities18,936 11,947 
Deferred state income tax— 745 
Deferred revenue77 86 
Investment in Foreign Subsidiaries— — 
Other4,005 2,822 
Total deferred tax assets75,132 50,221 
Deferred tax liabilities:
Intangible assets and goodwill44,057 45,951 
ROU asset18,264 11,295 
Fixed assets20,977 15,617 
Deferred state income tax17 — 
Other1,591 188 
Total deferred liabilities84,906 73,051 
Net deferred tax liabilities before valuation allowance(9,774)(22,830)
Valuation allowance(8,457)(815)
Net deferred tax liabilities$(18,231)$(23,645)

At December 31, 2023, the Company had $21.4 million of U.S. federal net operating loss carryforwards ("NOLs") which are subject to expiration beginning in 2027 and $53.5 million of various state net operating loss carryforwards which expire at varying dates between 2024 and 2035. At December 31, 2023 the Company had a total valuation allowance of $8.5 million. The change in the valuation allowance during 2023 was primarily related to a valuation allowance established against its Section 163(j) interest expense limitation deferred tax asset as the Company does not expect that its future taxable income will be sufficient to realize existing deferred tax assets. At December 31, 2022, a valuation allowance of $0.8 million was established against state NOLs.
Earnings from the Company's foreign subsidiaries are considered to be indefinitely reinvested. A distribution of these non-U.S. earnings in the form of dividends or otherwise would subject the company to foreign withholding taxes and may subject the Company to U.S. federal and state taxes. Determination of the amount of unrecognized deferred tax liability related to indefinitely reinvested profits is not feasible primarily due the Company's legal entity structure and the complexity of U.S. tax laws.

Global Intangible Low Taxed Income (GILTI) is a deemed amount of income derived from controlled foreign corporations (CFCs) in which a U.S. person is a 10% direct or indirect shareholder. The Company owns numerous CFCs, which are subject to GILTI inclusion. However, because several of the CFCs operate in countries with a high tax rate, notably Canada, Denmark and Mexico, it was determined that a Section 954 High Tax Exception to GILTI inclusions is appropriate.

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A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
December 31,
(in thousands)20232022
Balance at beginning of year$3,027 $— 
Additions for tax positions of current year— 191 
Additions for tax positions of prior years503 3,741 
Reductions for tax positions of prior year— (238)
Lapse of statute of limitations(796)(667)
Balance at end of year$2,734 $3,027 

The recognition of the unrecognized tax benefits would have a favorable effect on the effective tax rate. The unrecognized tax benefits as of December 31, 2023 included $1.1 million of tax benefits that, if recognized, would impact the effective tax rate in future periods. The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. The unrecognized tax benefits are recorded as a component of Other Liabilities in the Consolidated Balance Sheets. The total amount accrued for interest and penalties in the liability for uncertain tax positions was $0.8 million and $0.9 million as of December 31, 2023 and December 31, 2022, respectively. It is reasonably possible that the amount of unrecognized tax benefits will change in the next twelve months; however, the Company does not expect the change to have a material impact on the Consolidated Statements of Operations and Comprehensive Income (Loss) or the Consolidated Balance Sheets. Interest and penalties are recognized over uncertain tax positions that arose from income tax matters in Canada. The Company has substantially concluded all Canadian income tax matters through the year ended December 31, 2015. Years 2016 through present are open and subject to examination.

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. As of December 31, 2023, the Company was subject to U.S. federal income tax examinations for the years 2020 through 2022 and income tax examinations from various other jurisdictions for the years 2016 through 2022.

Note 14 – Segment Information

Based on operational, reporting and management structures, the Company has identified three reportable segments based on the nature of the products and services and type of customer for those products and services. A description of our reportable segments is as follows:

Lawson is a distributor of specialty products and services to the industrial, commercial, institutional and government maintenance, repair and operations market.

TestEquity is a distributor of test and measurement equipment and solutions, industrial and electronic production supplies, vendor managed inventory programs, and converting, fabrication and adhesive solutions from its leading manufacturer partners supporting the aerospace and defense, wireless and communication, semiconductors, industrial electronics and automotive, and electronics manufacturing industries.

Gexpro Services is a global supply chain solutions provider, specializing in the development of mission critical production line management, aftermarket and field installation programs.

The Company also has an “All Other” category which includes unallocated DSG holding company costs that are not directly attributable to the ongoing operating activities of our reportable segments and includes the results of the auditBolt Supply House ("Bolt") non-reportable segment. Revenue within the All Other category represents the results of Bolt. Bolt generates revenue primarily from the sale of MRO products to its walk-up customers and service to its customers through its 14 branch locations. Bolt does not provide VMI services for its customers or provide services in addition to product sales to customers. Revenue is recognized at the time that control of the product has been transferred to the customer which is either upon delivery or shipment depending on the terms of the contract.

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Financial information for the Company's segments and reconciliations of that information to the consolidated financial statements is presented below.
Year Ended December 31,
(in thousands)20232022
Revenue
Lawson(1)
$468,711 $324,783 
TestEquity641,768 392,358 
Gexpro Services405,733 385,326 
All Other(2)
55,890 48,955 
Intersegment revenue elimination(1,700)— 
Total revenue$1,570,402 $1,151,422 
Operating income (loss)
Lawson(1)
$32,498 $6,536 
TestEquity(16,465)11,375 
Gexpro Services27,000 21,291 
All Other(2)
(42)2,584 
Total operating income (loss)$42,991 $41,786 
(1)    Includes the operating results of Lawson only subsequent to the Merger Date of April 1, 2022 and not Lawson operating results prior to the Mergers.
(2)    Includes the operating results of All Other only subsequent to the Merger Date of April 1, 2022 and not All Other operating results prior to the Mergers.

Segment revenue includes revenue from sales to external customers and intersegment revenue from sales transactions between segments. The Company accounts for intersegment sales similar to third party transactions that are conducted on an arm's-length basis and reflect current market prices. Intersegment revenue is eliminated in consolidation and is not included in consolidated revenue on the financial statements. Segment revenue and the elimination of intersegment revenue was as follows:
(in thousands)LawsonTestEquityGexpro ServicesAll OtherEliminationTotal
Year Ended December 31, 2023
Revenue from external customers$468,379 $641,643 $404,490 $55,890 $— $1,570,402 
Intersegment revenue332 125 1,243 — (1,700)— 
Revenue$468,711 $641,768 $405,733 $55,890 $(1,700)$1,570,402 
Year Ended December 31, 2022
Revenue from external customers$324,783 $392,358 $385,326 $48,955 $— $1,151,422 
Intersegment revenue— — — — — — 
Revenue$324,783 $392,358 $385,326 $48,955 $— $1,151,422 

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Long-lived assets, which includes property, plant and equipment, rental equipment, goodwill, intangibles, right of use operating lease assets, and other assets, were as follows:
December 31,
(in thousands)20232022
Long-lived assets by segment
Lawson$312,136 $324,732 
TestEquity378,348 201,919 
Gexpro Services141,797 152,720 
All Other42,132 40,696 
Total$874,413 $720,067 
Long-lived assets by geographic area
United States$765,160 $580,870 
Canada72,054 70,561 
Europe32,997 67,957 
Pacific Rim417 — 
Latin America3,785 679 
Total$874,413 $720,067 

Refer to Note 4 – Revenue Recognition for disaggregated revenue by geographic area.

Capital expenditures and depreciation and amortization by segment were as follows:
Year Ended December 31,
(in thousands)20232022
Capital expenditures
Lawson(1)
$6,626 $3,737 
TestEquity2,955 250 
Gexpro Services5,053 3,809 
All Other(2)
703 511 
Total$15,337 $8,307 
Depreciation and amortization
Lawson(1)
$19,532 $10,594 
TestEquity26,002 17,480 
Gexpro Services15,986 15,175 
All Other(2)
2,068 1,937 
Total$63,588 $45,186 
(1)    Includes Lawson's activities only subsequent to the Merger Date of April 1, 2022 and not prior to the Mergers.
(2)    Includes the activities of All Other only subsequent to the Merger Date of April 1, 2022 and not prior to the Mergers.

Note 15 – Commitments and Contingencies

Merger Litigation

In February 2022, three purported DSG stockholders made demands pursuant to Section 220 of the Delaware General Corporation Law to inspect certain books and records of DSG (collectively, the “Books and Records Demands”). One stated purpose of the Books and Records Demands was to investigate questions of director disinterestedness and independence and the alleged possibility of wrongdoing, mismanagement and/or material non-disclosure related to the Special Committee’s and the DSG Board of Directors’ approval of the Mergers. On March 16, 2022, one of the purported DSG stockholders who previously made a Books and Records Demand filed a lawsuit entitled Robert Garfield v. Lawson Products, Inc., Case No. 2022-0252, in the Court of Chancery of the State of Delaware against DSG (the “Garfield Action”). On March 22, 2022, another of the purported DSG stockholders who previously made a Books and Records Demand filed a lawsuit entitled Jeffrey Edelman v. Lawson Products, Inc., Case No. 2022-0270, in the Court of Chancery of the State of Delaware against
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DSG (the “Edelman Action”). The Garfield Action and the Edelman Action, which were consolidated and re-captioned as Lawson Products, Inc. Section 220 Litigation, Case No. 2022-0270, are collectively referred to as the “Books and Records Actions.” The Books and Records Actions sought to compel inspection of certain books and records of DSG to investigate questions of director disinterestedness and independence and the alleged possibility of wrongdoing, mismanagement and/or material non-disclosure related to the Special Committee’s and the DSG Board of Directors’ approval of the Mergers. Following briefing, the Delaware Court of Chancery held a trial on July 14, 2022 to adjudicate the Books and Records Actions. At the conclusion of the trial, the Court ruled orally that the stockholders’ demands would be granted only in one respect (production of documents sufficient to show the identities of any guarantors of debt of the acquired companies) and the Court denied the remainder of the stockholders’ requests. The Court’s ruling was memorialized in an order issued on July 20, 2022. Thereafter, DSG produced excerpts of certain documents as required by the Company’s independent auditors; (iv) reviewingCourt's ruling and subsequent order.

On October 3, 2022, the annual audited financial statementsplaintiffs in the Books and quarterly financial statements with managementRecords Actions filed a shareholder derivative action (the “Derivative Action”) entitled Jeffrey Edelman and Robert Garfield v. John Bryan King et al., Case No. 2022-0886, in the independent auditors; (v) periodically reviewing with the Company’s General Counsel potentially material legal and regulatory matters and corporate compliance; and (vi) reviewing and approving all related party transactions. Additionally, the Audit Committee provides oversightCourt of Chancery of the Company’s Enterprise Risk Management program.
State of Delaware (the "Delaware Chancery Court"). The Audit Committee consists ofDerivative Action names as defendants J. Bryan King, Lee S. Hillman, (Chair),Bianca A. Rhodes, Mark F. Moon, Andrew B. Albert, I. Steven Edelson and Bianca A. Rhodes. EachRonald J. Knutson (collectively, “Director and Officer Defendants”), and LKCM Headwater Investments II, L.P., LKCM Headwater II Sidecar Partnership, L.P., Headwater Lawson Investors, LLC, PDLP Lawson, LLC, LKCM Investment Partnership, L.P., LKCM Micro-Cap Partnership, L.P., LKCM Core Discipline, L.P. and Luther King Capital Management Corporation (collectively, the “LKCM Defendants”). Purporting to act on behalf of DSG, in the Derivative Action the plaintiffs allege, among other things, various claims of alleged breach of fiduciary duty against the Director and Officer Defendants and the LKCM Defendants in connection with the Mergers. The Derivative Action seeks, among other things, money damages, equitable relief and the costs of the Derivative Action, including reasonable attorneys’, accountants’ and experts’ fees. On October 24, 2022, the plaintiffs voluntarily dismissed PDLP Lawson, LLC and LKCM Investment Partnership, L.P. from the Derivative Action without prejudice.

The Delaware Chancery Court held a hearing on September 13, 2023, to hear arguments on the defendants’ motions to dismiss. At the conclusion of the hearing, in rulings issued on September 13, 2023, and September 19, 2023, the entire complaint was dismissed with prejudice for failure to state a claim. On October 16, 2023, the plaintiffs filed a notice of appeal from the dismissal of their claims with respect to all defendants other than the members of the Special Committee (Messrs. Hillman, Albert and Edelson) and Mr. Moon. On October 25, 2023, Plaintiff Garfield voluntarily dismissed his appeal. The voluntary dismissal did not impact the appeal by Plaintiff Edelman, who continued to advance his appeal. Plaintiff’s opening brief on appeal was filed on November 30, 2023. Defendants’ joint answering brief was filed on January 5, 2024. Plaintiff’s optional reply brief was filed on January 25, 2024. The Delaware Supreme Court has scheduled oral argument in the appeal to occur on May 22, 2024.

DSG disagrees with and intends to vigorously defend against the Derivative Action. The Derivative Action could result in additional costs to DSG, including costs associated with the indemnification of directors and officers. At this time, DSG is unable to predict the ultimate outcome of the Derivative Action or, if the outcome is adverse, to reasonably estimate an amount or range of reasonably possible loss, if any, associated with the Derivative Action. Accordingly, no amounts have been recorded in the consolidated financial statements for these matters. No assurance can be given that additional lawsuits will not be filed against DSG and/or its directors and officers and/or other persons or entities in connection with the Mergers.

Cyber Incident Litigation

On February 10, 2022, DSG disclosed that its computer network was the subject of a cyber incident potentially involving unauthorized access to certain confidential information (the “Cyber Incident”). On April 4, 2023, a putative class action lawsuit (the “Cyber Incident Suit”) was filed against DSG entitled Lardone Davis, on behalf of himself and all others similarly situated, v. Lawson Products, Inc., Case No. 1:23-cv-02118, in the United States District Court for the Northern District of Illinois, Eastern Division. The plaintiff in this case, who purports to represent the class of individuals harmed by alleged actions and/or omissions by DSG in connection with the Cyber Incident, asserts a variety of common law and statutory claims seeking monetary damages, injunctive relief and other related relief related to the potential unauthorized access by third parties to personal identifiable information and protected health information.

DSG disagrees with and intends to vigorously defend against the Cyber Incident Suit. The Cyber Incident Suit could result in additional costs and losses to DSG, although, at this time, DSG is unable to reasonably estimate the amount or range of reasonably possible losses, if any, that might result from adverse judgments, settlements, fines, penalties or other resolution of these proceedings based on the early stage of this proceeding, the absence of specific allegations as to alleged
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damages, the uncertainty as to the certification of a class or classes and the size of any certified class, if applicable, and the lack of resolution of significant factual and legal issues. Accordingly, no amounts have been recorded in the consolidated financial statements for the Cyber Incident Suit. No assurance can be given that additional lawsuits will not be filed against DSG and/or its directors and officers and/or other persons or entities in connection with the Cyber Incident.

Environmental Matter

In 2012, it was determined that a Company owned site in Decatur, Alabama, contained hazardous substances in the soil and groundwater as a result of historical operations prior to the Company's ownership. The Company retained an environmental consulting firm to further investigate the contamination, prepare a remediation plan, and enroll the site in the Alabama Department of Environmental Management (“ADEM”) voluntary cleanup program.

A remediation plan was approved by ADEM in 2018. The plan consists of chemical injections throughout the affected area, as well as subsequent monitoring of the area. The injection process was completed in the first quarter of 2019 and the environmental consulting firm is monitoring the affected area. At December 31, 2023 the Company had approximately $0.1 million accrued for potential monitoring costs included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets. The costs for future monitoring are not significant and have been fully accrued. The Company does not expect to capitalize any amounts related to the remediation plan.

Defined Contribution Plan

The Company provides a 401(k) defined contribution plan to allow employees a pre-tax investment vehicle to save for retirement. The Company made contributions to the 401(k) plan of $7.2 million and $5.5 million for the years ended December 31, 2023 and 2022, respectively.

Note 16 – Related Party Transactions

Management Services Agreements

Prior to the Mergers, a subsidiary of TestEquity was party to a management agreement with Luther King Capital Management Corporation (“LKCM”) for certain advisory and consulting services (the “TestEquity Management Agreement”), and a subsidiary of Gexpro Services was party to a management agreement with LKCM for certain advisory and consulting services (the “Gexpro Services Management Agreement”). In connection with the closing of the Mergers on April 1, 2022, (i) all of the TestEquity subsidiary’s rights, liabilities and obligations under the TestEquity Management Agreement were novated to, transferred to and assumed by the TestEquity Equityholder, and LKCM released the TestEquity subsidiary from all obligations and claims under the TestEquity Management Agreement, and (ii) all of the Gexpro Services subsidiary’s rights, liabilities and obligations under the Gexpro Services Management Agreement were novated to, transferred to and assumed by the Gexpro Services Stockholder, and LKCM released the Gexpro Services subsidiary from all obligations and claims under the Gexpro Services Management Agreement (collectively, the “Novations”). During the first three months of 2022, expense of $0.5 million was recorded within Selling, general and administrative expenses within the Consolidated Statements of Operations and Comprehensive Income (Loss), reflecting expenses accrued under these management agreements from January 1, 2022 through the April 1, 2022 Merger Date. As of April 1, 2022, the prior obligation of $5.3 million was effectively settled and considered to be a deemed equity contribution by LKCM recorded to additional paid in capital. As a result of the Novations, no additional expense under these management agreements has been incurred subsequent to the Mergers.

Consulting Services

Subsequent to the Mergers, individuals employed by LKCM Headwater Operations, LLC, a related party of LKCM, have provided the Company with certain consulting services for interim executive management in addition to assisting in identifying cost savings, revenue enhancements and operational synergies of the combined companies. For the year ended 2023 and 2022, expense of $0.6 million and $0.2 million, respectively, was recorded in Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss), reflecting expenses accrued for these consulting services.

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Principal Executive Office Lease

In connection with the Company’s headquarters move to Fort Worth, Texas in 2023, the Company has been utilizing office space in a building that is leased by LKCM. The Company is not charged any rent or other amounts for the use of the office space.

TestEquity and Gexpro Services Mergers

Immediately prior to the Mergers, entities affiliated with LKCM and J. Bryan King (President and Chief Executive Officer of DSG and Chairman of the DSG Board of Directors), including private investment partnerships for which LKCM serves as investment manager, owned a majority of the ownership interests in the TestEquity Equityholder (which in turn owned all of the outstanding equity interests of TestEquity as of immediately prior to the completion of the TestEquity Merger). As of the Merger Date, Mr. King was a director of the TestEquity Equityholder. In addition, as of the Merger Date, Mark F. Moon (a member of the DSG Board of Directors) was a director of, and held a direct or indirect equity interest in, the TestEquity Equityholder.

Immediately prior to the Mergers, entities affiliated with LKCM and Mr. King, including private investment partnerships for which LKCM serves as investment manager, owned a majority of the ownership interests in the Gexpro Services Stockholder (which in turn owned all of the then outstanding stock of Gexpro Services).

Immediately prior to the Mergers, entities affiliated with LKCM and Mr. King beneficially owned approximately 48% of the then-outstanding shares of DSG common stock. As a result of the issuance of 20.6 million shares at the closing of the Mergers and the issuance of the additional 3.4 million shares in accordance with the earnout provisions of the TestEquity Merger Agreement and the Gexpro Services Merger Agreement on March 20, 2023, entities affiliated with LKCM and Mr. King beneficially owned in the aggregate approximately 32.6 million shares of DSG common stock representing approximately 77.4% of the outstanding shares of DSG common stock as of March 31, 2023.

Rights Offering

Certain entities affiliated with LKCM and J. Bryan King exercised their basic subscription rights and over-subscription rights in the Rights Offering and purchased approximately 3.6 million additional shares of DSG common stock at a purchase price of $22.50 per share. Following the completion of the Rights Offering on May 30, 2023, entities affiliated with LKCM and Mr. King beneficially owned in the aggregate approximately 36.4 million shares of DSG common stock as of June 1, 2023, representing approximately 77.8% of the outstanding shares of DSG common stock as of December 31, 2023.

Board of Directors

M. Bradley Wallace, who became a director of the Company upon his election at the Company's 2023 annual stockholders meeting on May 19, 2023, is a Founding Partner of LKCM Headwater Investments, the private capital investment group of LKCM.

Note 17 – Subsequent Event

On January 22, 2024, DSG completed the acquisition of Safety Supply Illinois LLC, conducting business as Emergent Safety Supply ("ESS"), with a preliminary purchase price of $9.9 million. ESS is a national distributor of safety products based near Chicago in Batavia, Illinois that generates annual sales of approximately $13 million. ESS was acquired to expand Lawson's safety product category. The acquisition was funded through DSG's cash on hand.

Due to the recent acquisition date, the purchase accounting for ESS was not final at the time of this filing, and a preliminary allocation of consideration exchanged to the estimated fair values of assets acquired and liabilities assumed was not complete. The final valuation will be completed within the one-year measurement period following the acquisition date.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this annual report (“the Evaluation Date”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective as of December 31, 2023.

Management’s Report on Internal Control over Financial Reporting

Company management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company as defined in Rule 13a-15(f) under the Exchange Act. This system, which management has chosen to base on the framework set forth in the 2013 Internal Control-Integrated Framework, published by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), is under the supervision of our Chief Executive Officer and Chief Financial Officer, is effected by the Company’s Board of Directors, management and other personnel, and is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

The Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Further, because of changes in conditions, effectiveness of internal controls over financial reporting may vary over time.

The Company has excluded HIS Company, Inc., a wholly-owned subsidiary, from the scope of management’s report on internal control over financial reporting, representing approximately 14% of total assets (excluding goodwill and intangible assets, which were integrated into the Company's control environment) as of December 31, 2023 and 15% of revenue for the year then ended.

Changes in Internal Control over Financial Reporting

As previously disclosed under “Item 9A – Controls and Procedures” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, management concluded that its internal control over financial reporting was not effective based on the material weakness identified.

Specifically, in our TestEquity operating segment, we did not have sufficient technical accounting resources and personnel (i) to help ensure proper application of GAAP in the accounting for certain areas primarily related to accounting for business acquisitions and the disposal of rental equipment, or (ii) to effectively design and execute our process level controls around (a) revenue recognition, (b) account reconciliations, (c) accounting policies, and (d) proper segregation of duties. Although these control deficiencies did not result in any material misstatement of our consolidated financial statements, it could lead to a material misstatement of account balances or disclosures.

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As of December 31, 2023, the Company has completed remediation of the following previously reported material weakness and based on the results of its internal control evaluation, management concluded that our internal control over financial reporting is effective as of December 31, 2023.

The Company’s remediation efforts are described below. Except as otherwise described herein, there was no change in our internal control over financial reporting that occurred during the fourth quarter of 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Remediation of Material Weakness in Internal Control over Financial Reporting

Management has performed and implemented the necessary actions and controls to remediate the material weakness:

Accounting Expertise and Personnel

•Hired experienced professionals to enhance the depth and competence of our accounting and finance team.
•Reassigned responsibilities between operating segments to increase the number of critical accounting oversight roles, which strengthened the oversight and review procedures over segregation of duties, financial reporting, and internal controls.
•Centralized technical accounting expertise at the corporate level to oversee complex accounting transactions and review operating segment financial statements.
•Expanded training to include internal control workshops designed to improve control awareness and educate all applicable personnel, in addition to one-on-one training sessions on account reconciliations and other critical review procedures, including the completeness and accuracy over information produced by the Company.

Accounting Policies and Controls

•Established and communicated the financial reporting “Vision, Mission and Values”, which defines expectations related to strong internal controls governance, and reliable and accurate financial reporting.
•Strengthened and drafted critical accounting policies, specifically within complex, non-routine transactions, revenue recognition and accounting for business acquisitions, and developed processes and controls to verify accounting procedures.
•Implemented delegation of authority procedures to assign appropriate authorized reviewers.
•Designed and implemented entity-level monitoring controls to improve corporate oversight over the review and preparation of complete and accurate financial information.
•Designed and implemented review controls over the completeness and accuracy of key inputs provided to and outputs provided by third-party specialists who provide expertise on business combinations
•Performed thorough accounts reconciliations, including thorough review of noted differences.

Segregation of Duties

•Evaluated logical access and eliminated known high-risk segregation of duties conflicts.
•Established a standard framework governing the segregation of incompatible duties across the Company.
•Designed various processes and controls to adequately segregate job responsibilities and system access and implemented applicable mitigating internal controls.
•Designed and implemented periodic access review controls to monitor user access and identify segregation of duties conflict issues.

Inherent Limitations on Effectiveness of Controls

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all control issues or misstatements, accordingly, our controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our control system are met. Projections of any evaluation of
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effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders
Distribution Solutions Group, Inc.

Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Distribution Solutions Group, Inc., (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2023, based on criteria established in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in the 2013 Internal Control – Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2023, and our report dated March 7, 2024 expressed an unqualified opinion on those financial statements.

Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over financial reporting of HIS Company, Inc., a wholly-owned subsidiary, whose financial statements reflect total assets and revenues constituting 14 and 15 percent, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2023. As indicated in Management’s Report, HIS Company, Inc., was acquired during 2023. Management’s assertion on the effectiveness of the Company’s internal control over financial reporting excluded internal control over financial reporting of HIS Company, Inc.

Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ GRANT THORNTON LLP
Los Angeles, California
March 7, 2024
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ITEM 9B. OTHER INFORMATION.

During the quarter ended December 31, 2023, none of our directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (as such terms are defined under Item 408 of Regulation S-K).

ITEM 9C. DISCLOSURES REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

None.

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Distribution Solutions Group, Inc.
Notes to Consolidated Financial Statements

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

a.    Directors

The information required by this Item is set forth in the Company’s Proxy Statement for the Annual Meeting of Stockholders to be held on May 23, 2024, under the caption “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance,” which information is incorporated herein by reference.

b.    Executive Officers

The information required by this Item is set forth under the caption Item 1 — Business under “Information About Our Executive Officers.”

c.    Audit Committee

Information on the Company’s Audit Committee satisfiesis contained under the independence requirementscaption “Board of The Nasdaq Stock MarketDirectors Meetings and Committees” in the SEC and satisfiesCompany’s Proxy Statement for the financial sophistication requirementsAnnual Meeting of The Nasdaq Stock Market.Stockholders to be held on May 23, 2024, which is incorporated herein by reference.

The Board of Directors has determined that Lee Hillman, member of the Audit Committee of the Board of Directors, qualifies as an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of
Regulation S-K,
and that Mr. Hillman is “independent” as the term is defined in the listing standards of the NASDAQNasdaq Global Select Market.

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The Compensation Committee
The Compensation Committee discharges the responsibilities of the Board of Directors relating to compensation of the CEO and establishes compensation for all other executive officers of the Company. The Compensation Committee is responsible for (i) reviewing and approving corporate goals and objectives relevant to the compensation for executive officers; (ii) evaluating the performance of executive officers in light of those goals and objectives; and (iii) setting the compensation level of executive officers based on this evaluation. The Compensation Committee also administers incentive compensation plans and equity-based plans established or maintained by the Company from time to time; makes recommendations to the Board of Directors with respect to the adoption, amendment, termination or replacement of the plans; and recommends to the Board of Directors the compensation for members of the Board of Directors. The Compensation Committee reviews and approves the compensation programs for the CEO and other executive officers whose compensation is included in this report. The CEO makes recommendations on compensation to the Compensation Committee for all executive officers except himself. The CEO may not be present in any meeting of the Compensation Committee in which his compensation is discussed.
The Compensation Committee consists of Lee S. Hillman (Chair), Andrew B. Albert, I. Steven Edelson and Mark F. Moon. Each member of the Compensation Committee has satisfied the independence requirements of The Nasdaq Stock Market (including the enhanced independence requirements for Compensation Committee members) and is an “outside director” as defined in Section 162(m) of the Internal Revenue d.    Code of 1986, as amended (the “Code”).
Business Conduct
The Nominating and Governance Committee

The Nominating and Governance Committee identifies and nominates potential directors to the Board of Directors and otherwise takes a leadership role in shaping the corporate governance of the Company.
The Nominating and Governance Committee consists of Andrew B. Albert (Chair), I. Steven Edelson, Mark F. Moon and Bianca A. Rhodes. Each member of the Nominating and Governance Committee has satisfied the independence requirements of The Nasdaq Stock Market.
Code of Conduct
The Company has adopted a Code of Business Conduct applicable to all employees and sales representatives. The Company’s Code of Business Conduct is applicable to senior financial executives including the principal executive officer, principal financial officer and principal accounting officer of the Company. The Company’s Code of Business Conduct is available on the Corporate Governance page in the Investor Relations section of the Company’s website at
www.lawsonproducts.com
 http://www.distributionsolutionsgroup.com. The Company intends to post on its website any amendments to, or waivers from its Code of Business Conduct applicable to senior financial executives. The Company will provide any persons with a copy of its Code of Business Conduct without charge upon written request directed to the Company’s Secretary at the Company’s address.
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ITEM 11. EXECUTIVE COMPENSATION.
Compensation Overview
We qualify as a “smaller reporting company,” as defined in Item 10(f)(1) of Regulation
S-K
promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), because our public float was less than $250,000,000 as of the last business day of our most recently completed second fiscal quarter. Consistent with our regular annual proxy statement disclosure, we have elected to provide in this Form
10-K/A
certain scaled disclosures as permitted under the Exchange Act for smaller reporting companies.
The following sections explains how our executive compensation programs are designed and operate in practice with respect to our executives and specifically the following persons who constitute the Company’s “named executive officers” (the “Named Executive Officers” or “NEOs”).
Named Executive Officer
Title
Michael G. DeCata
(1)
President and Chief Executive Officer
Ronald J. KnutsonExecutive Vice President, Chief Financial Officer, Treasurer and Controller
Shane T. McCarthy 
(2)
Former Senior Vice President, Supply Chain, Product Management & Marketing
(1)
Mr. DeCata has agreed to resign from his positions as President and Chief Executive Officer, effective May 1, 2022.
(2)
Mr. McCarthy separated from the Company on January 21, 2022.
Executive Compensation in 2021 Relative to Company Performance and Performance Measures
Pay-for-performance
continues to be a fundamental tenet of our compensation philosophy, which includes the core principles of rewarding the attainment of performance goals and aligning our executives’ objectives with our stockholders. We seek to closely align the interests of our Named Executive Officers with the interests of our stockholders. Our compensation programs are designed to reward our NEOs for the achievement of short-term and long-term strategic and operational goals and the achievement of increased total stockholder return (“TSR”) (for additional detail, see the Total Stockholder Return section) while at the same time mitigating unnecessary or excessive risk-taking. We believe that Adjusted EBITDA and Adjusted Net Sales are the most critical factors driving our stock price.
Our NEOs’ total compensation is comprised of a mix of base salary, annual cash incentive awards and long-term incentive awards that include performance-based cash and equity awards. The following tables highlight the year-over-year relationship of the two key financial metrics of Company performance relative to incentive compensation payable in our Annual Incentive Plan (“AIP”). Additionally, to continue to support a key Company strategic growth initiative, we continued to include Net Sales from Acquisitions as a performance goal required to earn 10% of our CEO and other NEO’s AIP award opportunity. As a result of the continued uncertainty of the pandemic, the Board approved administering the Company’s 2021 performance over two independent performance cycles running from January 1, 2021, through June 30, 2021, and July 1, 2021, through December 31, 2021, for the AIP performance metrics related to Adjusted EBITDA and Adjusted Net Sales. The charts below represent the results of the combined cycles. See “Annual Incentive Plan” section for additional detail.
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(1)
The 2020 compensation performance metrics, “Adjusted EBITDA” and “Adjusted Net Sales,” were replaced as part of an incentive structure implemented and amended by the Compensation Committee as a result of the economic environment created by the pandemic. These metrics were replaced with Regulation G EBITDA. For additional details see “CEO AIP payout is 100% formula-based, linked to three key drivers of long-term value” section.
(2)
The two compensation performance metrics, “Adjusted EBITDA” and “Adjusted Net Sales,” were measured based on performance during the performance cycles consisting of January 1, 2021, through June 30, 2021, and July 1, 2021, through December 31, 2021.
(3)
“Adjusted EBITDA” is a compensation performance metric that is equal to our operating income adjusted to eliminate the effects of interest expense, income tax expense, depreciation and amortization, our AIP and our long-term incentive plan (“LTIP”) compensation, foreign exchange impact, unplanned acquisition activity and other certain
non-routine
and
non-operating
items (for additional detail, see the Annual Incentive Plan section).
(4)
“Adjusted Net Sales” is a compensation performance metric that is equal to our net sales adjusted to eliminate the effects of the net effect of foreign exchange changes and unplanned acquisition sales (for additional detail, see the Annual Incentive Plan section).
CEO and NEOs’ Compensation is aligned with Performance and Stockholder Value
To summarize how our CEO’s compensation has been aligned with performance over the 2019-2021 performance cycle, the narrative and tables provided below illustrate the grant date value of the AIP and LTIP pay opportunities, as well as the compensation realizable and realized from these awards over the same time period. We believe the inclusion of realizable compensation enhances our compensation disclosure because realizable pay is compensation that focuses on the middle of our compensation lifecycle—after award opportunities have been granted, but not yet vested. Additionally, realized compensation sets forth the compensation that has been earned based upon awards granted throughout the three-year performance cycle.
The Board has taken concerted actions to align the compensation of our CEO to tangible financial results and increases in stockholder value. We do this primarily by considering several key factors: the CEO’s pay mix, our performance-based AIP, long-term incentives with potential value to be realized aligned with tangible growth in stockholder value, and by encouraging share ownership. We are providing additional discussion on each of these factors.
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CEO AIP payout is 100% formula-based, linked to three key drivers of long-term value
Our CEO’s annual incentive opportunity is tied directly to organic growth in Adjusted Net Sales, growth in Adjusted EBITDA, and Net Sales From Acquisitions, the key strategic drivers which we believe drive long-term growth in stockholder value. Over the 2019-2021 performance period, our CEO’s annual bonus and performance relative to these performance metrics has been as follows:
   
2019
  
2020
  
2021
(1)
 
Adjusted EBITDA (in $000s)
  $38,647  $35,281  $36,242 
Payout percentage
   93.5%   —  %   66.6% 
Adjusted EBITDA payout
  $314,194  $—    $224,043 
Adjusted Net Sales (in $000s)
  $371,897  $330,197  $412,830 
Payout percentage
   87.7%   —  %   62.3% 
Adjusted Net Sales payout
  $147,336  $—    $104,685 
Net Sales from Acquisitions (in $000s)
  $—    $62,432  $—   
Payout percentage
   —  %   150.0%   —  % 
Net Sales from Acquisitions payout
  $—    $84,000  $—   
Regulation G EBITDA (in $000s)
(2)
   N/A  $15,936   N/A 
Payout percentage
   N/A   59.9%   N/A 
Regulation G EBITDA payout
  $—    $271,607  $—   
Annual AIP target
  $560,000  $560,000  $560,000 
Annual AIP payout
  $461,530  $355,607  $328,728 
Annual AIP % payout
   82.4%   63.5%   58.7% 
(1)
Payouts determined based on the Company’s 2021 performance during two independent performance cycles running from January 1, 2021, through June 30, 2021, and July 1, 2021, through December 31, 2021 for the AIP performance metrics related to Adjusted EBITDA and Adjusted Net Sales. Payouts represent the combined cycles. See “Annual Incentive Plan” section for additional detail.
(2)
Net Sales from Acquisitions is a compensation performance metric equal to the Company’s net sales from acquired companies during the year of acquisition.
(3)
Regulation G EBITDA is a compensation metric that is equal to our reported Regulation G EBITDA during the second half of 2020 adjusted to exclude amounts related to the Partsmaster business that was acquired in 2020.
CEO LTI Awards aligned with meaningful increases in share price
Our performance-based LTIP is a significant portion of the compensation awarded to our executive team. The LTIP award opportunity is based on a total target opportunity for each executive and is delivered in different award types, which are earned based on results compared to
pre-defined
financial measures and increases in Company stock price over the performance period, directly linking our NEO’s compensation to increases to stockholder value.
Compensation Program is aligned with Long-Term Stockholder Value.
The following represents important elements of our long-term incentive plan:
We encourage a long-term orientation of our executives by requiring three-year cliff vesting under the terms of our LTIP cash and equity-based awards.
Our Amended and Restated 2009 Equity Plan does not permit repricing or replacing underwater stock options or stock appreciation rights (including cash buyouts) without prior stockholder approval.
The NEOs are rewarded for growth in the same manner as stockholders and will realize value for the majority of their incentive compensation awards if the Company’s stock price appreciates in value from the date the award is approved.
We require a post-vest holding period for our three most senior NEOs.
We are highlighting the Company’s stock price performance from January 1, 2019, through December 31, 2021, reflecting an appreciation of 73.3% over the three-year performance period.
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LOGO
The chart below illustrates the realizable and realized compensation for Mr. DeCata over the three-year performance period. The Company’s stock price appreciation over the last three years has resulted in realized and realizable compensation below the granted pay opportunity. In connection withinformation required by this award, the following awards have been realized during the three-year performance period:
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LOGO
(1)
“Granted Pay Opportunity” equals the sum of the three prior years (
i.e.
, 2019-2021): (i) the grant date fair value of Mr. DeCata’s grant of 5,500 RSAs in connection with his purchase of Company common stock following the payment of his 2019 AIP bonus, (ii) Salary (as reported in the Summary Compensation Table (“SCT”)), (iii) target award opportunity of AIP, and (iv) the grant date fair value of LTIP awards as reported in the SCT.
(2)“Realizable Pay” equals the sum of the three prior years: (i) the value of Mr. DeCata’s grant of 5,500 RSAs in connection with his purchase of Company common stock following the payment of his 2019 AIP bonus, (ii) salary earned, (iii) AIP earned, and (iv) the value of all earned LTIP awards for the completed performance cycle and unvested long-term incentive awards for the ongoing performance cycle. All unvested long-term incentive awards are valued based on our stock price as of December 31, 2021 of $54.75.
(3)“Realized Pay” equals the sum of the three prior years: (i) the value of Mr. DeCata’s grant of 5,000 RSAs in connection with his purchase of Company common stock following the payment of his 2017 AIP bonus based on our stock price as of December 31, 2021, (ii) salary earned, (iii) AIP earned, and (iv) the value of all earned LTIP awards for the completed performance cycle.
Total Stockholder Return.
Additionally,
in accordance with our
pay-for-performance
philosophy, our CEO’s total direct compensation opportunities have been closely aligned with our TSR over the most recent
9-year
period.
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LOGO
Compensation Philosophy and Objectives
Our compensation programs are designed to encourage and reward the creation of long-term stockholder value. The Company’s executive compensation programs reward executives for the development and execution of successful business strategies that lead to profitable growth. To deliver the appropriate mix of compensation for each NEO, we provide annual cash compensation, which includes a base salary and an annual incentive opportunity, and a long-term incentive opportunity, whichItem is largely based on increases to share price of the Company’s common stock from the date of grant. We believe the mix of these forms of compensation, in the aggregate, balances the reward for each executive’s contributions to our Company.
The Company guides its executive compensation programs with a compensation philosophy expressed in these three principles:
1.
Talent Acquisition
 & Retention.
We believe that having qualified people at every level of our Company is critical to our success. Our compensation programs are designed to encourage talented executives to join and continue their careers as part of our senior management team.
2.
Accountability for Lawson’s Business Performance.
To achieve alignment between the interests of our executives and our stockholders, we use short-term and long-term incentive awards. Our NEOs’ compensation increases or decreases are based on how well they achieve the established performance goals and the increase in stockholder value.
3.
Accountability for Individual Performance.
We believe teams and individuals should be rewarded when their contributions are exemplary and significantly support Company performance and value creation.
When making compensation decisions, the various elements of compensation are evaluated together, and the level of compensation opportunity provided for one element may impact the level and design of other elements. We attempt to balance our NEO total compensation program to promote the achievement of both current and long-term performance goals. The Company’s overall compensation philosophy is to pay at the median of market competitive practices, with the ability of actual
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pay to exceed market median for exceeding goals. A NEO’s compensation opportunity may benchmark above median levels reflecting individual qualifications, experience and position complexity, but the amount of compensation earned and/or realizable is designed to adjust with the results of our performance.
Elements of Total Compensation
In determining the type and amount of compensation for each executive, we use both annual cash compensation, which includes a base salary and an annual incentive award, and a long-term incentive opportunity, which is equity based. Our compensation programs are designed to encourage and reward the creation of long-term stockholder value, while at the same time avoiding the encouragement of unnecessary or excessive risk-takings. The Compensation Committee believes the mix of these forms of compensation, in the aggregate, supports the Company’s overall compensation objectives of attracting top talent for executive positions, incentivizing such executive officers, motivating and rewarding the achievement of individual and company goals and aligning the interests of executive officers with those of our stockholders. Our annual and long-term incentive plans provide for additional compensation for achievement above set performance targets such that an executive’s compensation may reach the 75th percentile of market levels based upon performance.
The following table describes each executive compensation element utilized in 2021 for our NEOs based on the philosophy and objectives described above as well as each element’s link to our compensation philosophy.
Compensation
Element		Philosophy StatementTalent
Acquisition
and Retention
Accountability
for Business
Performance
(Align to
Stockholder
Interests)
Accountability for
Individual Performance
(Support Company
Performance and Value
Creation)
Base SalaryWe intend to provide base pay competitive to the market of industry peers across other industries where appropriate. Our goal is to strike a balance between attracting and retaining talent, expecting superior results and finding individuals who can focus on transforming our business. Base salary maintains a standard of living, is used to compete in the market for talent and forms the foundation for other reward vehicles.X
Annual Incentive PlanThe 2021 AIP was designed to reward specific annual performance against business measures set by the Board. The amount of the 2021 AIP reward was determined by formula and can vary from 0% to 150% of an individual executive’s original target incentive.XXX
2021-2023 Long-Term Incentive PlanThe 2021-2023 LTIP was designed to align executives with the long-term interests of stockholders. The Committee believes that Performance Awards (“PA”s) based on performance against Company ROIC goals are a good indicator of whether or not the Company is improving cash flows and thus increasing the enterprise value of the Company. Market Stock Units (“MSU”s) are an incentive to meaningfully increase share price over a three-year performance cycle. The MSUs are scheduled to vest from 0% to 150% of an individual executive’s target incentive based on share price performance. Restricted Stock Units (“RSU”s) were granted as a retention incentive aligned with future changes to share price. All three LTIP incentives cliff-vest at the end of fiscal year 2023.XXX
Other Compensation and Benefit ProgramsLawson offers employee benefits programs that provide protections for health, welfare and retirement. These programs are standard within the United States and include healthcare, life, disability, dental and vision benefits as well as a 401(k) program and other federally provided programs outside of the United States. A deferred compensation program is also provided to a select group of our management, including our NEOs, to provide for
tax-advantaged
savings beyond the limits of qualified plans.		X
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Base Salary
We provide NEOs and other employees with a base salary to compensate them for services rendered during the fiscal year. Base salary represents the only fixed component of the three principal elements of our executive compensation program and is intended to provide a baseline minimum amount of annual compensation for our NEOs. Our base salary philosophy is intended to keep our fixed costs at an appropriate level for each role. In setting base salaries for the CEO and other executives, the Compensation Committee considers:
Competitive market data based upon peer group benchmarking;
The experience, skills and competencies of the individual;
The duties and responsibilities of the respective executive;
The ability of the individual to effectively transform our company and culture; and
The individual’s ability to achieve superior results.
We typically consider adjustments to NEO base salaries on an annual basis as part of our review process, as well as upon a promotion. Our NEOs are eligible to receive the same percentage annual merit percentage increase applicable to all other employees and may receive an increase that is more or less than our merit increase guideline as a result of each NEO’s current base salary vs. market levels, changes in duties, performance or retention considerations. 2021 base salary increases were not awarded for our CEO and other NEOs.
The base salaries for the NEOs in 2020 and 2021 were as follows.
         
Executive Name  2020 Base Salary 
(1)
   2021 Base Salary 
(2)
 
Michael G. DeCata  $560,000   $560,000 
Ronald J. Knutson   381,924    381,924 
Shane T. McCarthy   309,338    309,338 
(1)2020 base salaries were effective March 16, 2020 and are not reflective of the 2020 salary reductions as discussed in last year’s proxy statement. The actual base salary paid to each executive, inclusive of the salary reductions, is reported in the SCT.
(2)2021 base salaries were effective March 16, 2021.
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Annual Incentive Plan
We require our NEOs to be focused on achievement of the critical, strategic and tactical objectives that lead to annual Company success. Therefore, performance goals under our AIP align their compensation with our annual business objectives. The design of the AIP, the selected performance measures and targets and the timing of payouts are designed to drive positive business performance on an annual basis.
2021 AIP
Pursuant to the terms of the 2021 AIP, each NEO was granted a threshold, target and maximum bonus award opportunity expressed as a percentage of base salary. These bonus award opportunities range from 0% to 150% of the target AIP opportunity for our NEOs.
At the beginning of each year, the Compensation Committee approves the assignment of a threshold, target and maximum objective for each financial performance measure. The target objectives are established based upon the operating budget approved by the Board. Actual
year-end
financial results are compared to plan objectives in order to determine the amount of any NEO bonus. If actual financial results fall between the threshold and target or the target and maximum objectives, bonuses are proportionately increased as a result of the threshold or target objective being exceeded. Notwithstanding the other provisions of the AIP, the Committee may reduce or eliminate any bonus payable to a NEO based upon the Committee’s determination of individual performance or other factors it deems relevant. The Compensation Committee may not increase any bonus payable to a NEO.
As a result of the continued uncertainty of the pandemic, the Board approved administering the Company’s 2021 performance over two independent performance cycles running from January 1, 2021 through June 30, 2021 (“1st Half AIP”) and July 1, 2021 through December 31, 2021 (“2nd Half AIP”) for the AIP performance metrics related to Adjusted EBITDA and Adjusted Net Sales. The Board felt it was necessary to process the 2021 AIP in two separate independent cycles due to the uncertain nature impacting the Company’s results and difficulty in goal setting in the current environment. This allowed the Board to reassess market conditions and expectations midway through the year and make adjustments as needed.
The Company utilized
pre-established
performance criteria that are intended to align executive compensation with our 2021 business objectives. The 2021 AIP financial performance targets, which were set at levels in excess of the actual 2020 results, were as follows (dollars in thousands):
             
   AIP Performance Targets 
   Threshold  Target  Maximum 
Adjusted EBITDA (1st Half AIP)  $18,242  $21,461  $24,680 
Payout percentage   50%   100%   150% 
Adjusted EBITDA (2nd Half AIP)  $16,254  $18,872  $21,490 
Payout percentage   50%   100%   150% 
Adjusted Net Sales (1st Half AIP)  $204,733  $213,264  $221,795 
Payout percentage   50%   100%   150% 
Adjusted Net Sales (2nd Half AIP)  $203,892  $212,387  $220,882 
Payout percentage   50%   100%   150% 
Net Sales from Acquisitions  $12,000  $20,000  $60,000 
Payout percentage   50%   100%   150% 
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The Compensation Committee approved AIP short-term performance goals to focus our NEOs on business priorities for the upcoming year. Under the 2021 AIP, target opportunities as a percent of each NEO’s salary were set as follows:
                     
   2021 AIP Target  2021 AIP Goal Weighting 
   Amount   Percent of Base
Salary		  Adjusted
EBITDA
 (1)
  Adjusted Net
Sales Dollars 
(2)
  Net Sales from
Acquisitions		 
Michael G. DeCata  $560,000    100%   60%   30%   10% 
Ronald J. Knutson   229,154    60%   60%   30%   10% 
Shane T. McCarthy   154,669    50%   60%   30%   10% 
(1)Annual goal weighting split equally (30%) between the 1st Half AIP and 2nd Half AIP.
(2)Annual goal weighting split equally (15%) between the 1st Half AIP and 2nd Half AIP.
The 2021 AIP financial performance measure targets and actual results were as follows (dollars in thousands):
                 
      2021 AIP Performance Targets 
   Actual Results  Threshold  Target  Maximum 
Adjusted EBITDA (1st Half AIP)  $18,295  $18,242  $21,461  $24,680 
Payout percentage   50.8%   50%   100%   150% 
Adjusted EBITDA (2nd Half AIP)  $17,947  $16,254  $18,872  $21,490 
Payout percentage   82.3%   50%   100%   150% 
Adjusted Net Sales (1st Half AIP)  $207,608  $204,733  $213,264  $221,795 
Payout percentage   66.9%   50%   100%   150% 
Adjusted Net Sales (2nd Half AIP)  $205,222  $203,892  $212,387  $220,882 
Payout percentage   57.8%   50%   100%   150% 
Net Sales from Acquisitions  $—    $12,000  $20,000  $60,000 
Payout percentage   —  %   50%   100%   150% 
Compensation Performance Metrics
Adjusted EBITDA (1st Half)
The Adjusted EBITDA (1st Half) target of $21.5 million was established based on our planned 2021 Adjusted EBITDA. Actual Adjusted EBITDA (1st Half), including the AIP and LTIP plans was $12.1 million. This amount was then adjusted for Reg G stock-based compensation, severance costs, inventory adjustments, potential and current acquisition costs, foreign exchange rate changes, and other certain
non-routine
and
non-operating
items which were not included in the established target. The aggregate amount of all approved adjustments was an increase of $6.2 million resulting in an Adjusted EBITDA (1st Half) of approximately $18.3 million.
Adjusted EBITDA (2nd Half)
The Adjusted EBITDA (2nd Half) target of $26.5 million was established based on our planned 2021 Adjusted EBITDA. Actual 2021 Adjusted EBITDA (2nd Half), including the AIP and LTIP plans was $8.2 million. This amount was then adjusted for Reg G stock-based compensation, severance costs, inventory adjustments, potential and current acquisition costs, foreign exchange rate changes, and other certain
non-routine
and
non-operating
items which were not included in the established target. The aggregate amount of all approved adjustments was an increase of $9.7 million resulting in an Adjusted EBITDA (2nd Half) of approximately $17.9 million.
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Adjusted Net Sales (1st Half)
Adjusted Net Sales (1st Half) consisted of Net Sales, decreased for the net effect of foreign exchange rate changes and decreased for 2021 business initiatives which were not included in the established target. The aggregate amount of all approved adjustments was a decrease of $2.7 million.
Adjusted Net Sales (2nd Half)
Adjusted Net Sales (2nd Half) consisted of Net Sales, decreased for the net effect of foreign exchange rate changes and decreased for 2021 business initiatives which were not included in the established target. The aggregate amount of all approved adjustments was a decrease of $2.4 million.
The actual financial results finished between threshold and target objectives for the 1st Half AIP and 2nd Half AIP for Adjusted EBITDA and Adjusted Net Sales, and below threshold objective for Net Sales from Acquisitions. This resulted in 2021 AIP payouts equal to 58.7% of the aggregate target award opportunity for our NEOs.
         
   2021 AIP Payout 
   Target Payout   Actual Payout 
Michael G. DeCata  $560,000   $328,728 
Ronald J. Knutson   229,154    134,517 
Shane T. McCarthy   154,669    90,793 
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Long-Term Incentive Plan
Background—LTIP
The Compensation Committee directly engaged independent compensation consultant FGMK to make LTIP recommendations intended to be competitive with market practices, aligned with the Company’s business goals and supportive of the Company’s strategy for retaining and motivating leadership talent, as well as rewarding for superior performance. The LTIP design process allows the Committee to evaluate and consider the specific plan components each year. The LTIP is designed to incentivize financial performance over a longer time period than the AIP. The LTIP opportunity, calculated as a percentage of base salary, is formulated to be competitive with market practices and aligned with our compensation philosophy and objectives.
2021-2023 LTIP
In 2021, long-term incentive awards were granted to the NEOs using three LTI award opportunities: twenty percent (20%) of the total target opportunity was granted in the form of Restricted Stock Units (“RSU”s), forty percent (40%) in Performance Awards (“PA”s), and forty percent (40%) in Market Stock Units (“MSU”s). The target value of each award and the total 2021-2023 LTIP opportunity to each NEO is as follows:
                 
Executive  RSU Target
Award
(1)
   PA Target
Award
(1)
   MSU Target
Award
(1)
   
Total 2021-2023

Opportunity		 
Michael G. DeCata  $112,000   $224,000   $224,000   $560,000 
Ronald J. Knutson   61,108    122,216    122,216    305,540 
Shane T. McCarthy   37,121    74,241    74,241    185,603 
(1)
Additional shares are granted to Messrs. DeCata and Knutson in consideration for the
two-year
post-vest holding period applicable to vested shares. The additional shares are based on a
two-year
discount of 17.0%, as determined by an independent valuation.
Rationale for 2021-2023 LTIP Awards
Why award RSUs?
RSUs were granted as a retention incentive that are aligned to the long-term interests of stockholders by rewarding executives for Lawson’s share price change. The RSUs cliff vest in full upon the completion of the three-year performance cycle on December 31, 2023, provided that the participant remains continuously employed by the Company through such date. Mr. Knutson is subject to a
two-year
post-vest holding requirement on RSUs granted as part of the 2021-2023 LTIP. He cannot transfer or otherwise dispose of
one-hundred
percent (100%) of these awards until January 1, 2026.
Why award PAs?
PAs vest at the end of the three-year performance cycle based on the Company’s performance against annual ROIC targets set in conjunction with the approved operating plan. The PA payout is calculated based on the Company’s
3-year
cumulative average ROIC results relative to the cumulative
3-year
average ROIC performance goal. PAs are exchangeable for Company common stock or an equivalent cash payment, at the Compensation Committee’s discretion. ROIC% was selected as a performance metric because we feel this measure is a good indicator of whether or not a company is improving cash flows and thus increasing the enterprise value of the Company. We feel ROIC% is a solid indicator of company earnings generated by its capital base and aligned with future increases in shareholder value.
Why award MSUs?
MSUs are stock-settled awards that have a direct link to long-term interests of stockholders by rewarding executives for Lawson’s share price change vs. threshold, target and maximum stock price goals as recommended by the Committee, measured over the three-year performance cycle from grant date. The actual number of shares of our common stock issuable under MSUs is, therefore, variable based on the Company’s stock price over the three-year performance period. Mr. Knutson is subject to a
two-year
post-vest holding requirement on MSUs granted as part of the 2021-2023 LTIP. He cannot transfer or otherwise dispose of any of these awards until January 1, 2026.
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For the 2021-2023 LTIP, the potential value of MSUs is determined as follows:
The number of MSUs that will vest is based upon share price attainment determined by the trailing
60-trading
day weighted average closing price of the Company’s common stock on the vest date of December 31, 2023. Each participant will vest in the MSUs as follows:
             
   Threshold  Target  Maximum 
Weighted Average Closing Stock Price (as of December 31, 2023)  $61.50  $71.50  $81.00 
% of Target MSUs Vested   50%   100%   150% 
If the weighted average stock price is between each of the above as stated, the number of MSUs vested will be calculated using straight-line interpolation between each defined share price level. If the stock price is below $61.50, the executive would not receive an award. If the stock price exceeds $81.00, the executive would receive 150% of their target award. The executive will realize ordinary income, if any, on the MSUs based upon the fair market value of each MSU at vest date.
2020-2022 LTIP
In 2020, long-term incentive awards were granted to the NEOs using three LTI award opportunities: twenty percent (20%) of the total target opportunity was granted in the form of RSUs, forty percent (40%) in PAs, and forty percent (40%) in MSUs. The target value of each award and the total 2020-2022 LTIP opportunity to each NEO is as follows:
                 
Executive  RSU Target
Award
(1)
   PA Target
Award
(1)
   MSU Target
Award
(1)
   
Total 2020-2022

Opportunity		 
Michael G. DeCata
(2)
  $—     $—     $—     $—   
Ronald J. Knutson   61,108    122,216    122,216    305,540 
Shane T. McCarthy   37,121    74,241    74,241    185,603 
(1)
Additional shares are granted to Mr. Knutson in consideration for the
two-year
post-vest holding period applicable to vested shares. The additional shares are based on a
two-year
discount of 17.0%, as determined by an independent valuation.
(2)Mr. DeCata did not participate in the 2020-2022 LTIP; however, he was granted cash and equity awards pursuant to his employment agreement entered into on August 14, 2017, and amended on April 11, 2018, as described in the “Compensation Agreements” section.
The RSUs cliff vest in full upon the completion of the three-year performance cycle on December 31, 2022, provided that the participant remains continuously employed by the Company through such date. Mr. Knutson is subject to a
two-year
post-vest holding requirement on RSUs granted as part of the 2020-2022 LTIP. He cannot transfer or otherwise dispose of
one-hundred
percent (100%) of these awards until January 1, 2025.
The number of PAs that will vest is based on the Company’s performance against annual ROIC targets set in conjunction with the approved operating plan. The PA payout is calculated based on the Company’s
3-year
cumulative average ROIC results relative to the cumulative
3-year
average ROIC performance goal. PAs are exchangeable for Company common stock or an equivalent cash payment, at the Compensation Committee’s discretion. Mr. Knutson is subject to a
two-year
post-vest holding requirement on PAs granted as part of the 2020-2022 LTIP. He cannot transfer or otherwise dispose of
one-hundred
percent (100%) of these awards until January 1, 2025.
The number of MSUs that will vest is based upon share price attainment determined by the trailing
60-trading
day weighted average closing price of the Company’s common stock on the vest date of December 31, 2022. Mr. Knutson is subject to a
two-year
post-vest holding requirement on MSUs granted as part of the 2020-2022 LTIP. He cannot transfer or otherwise dispose of any of these awards until January 1, 2025. Each participant will vest in the MSUs as follows:
             
   Threshold  Target  Maximum 
Weighted Average Closing Stock Price (as of December 31, 2022)  $62.50  $71.50  $81.00 
% of Target MSUs Vested   50%   100%   150% 
If the weighted average stock price is between each of the above as stated, the number of MSUs vested will be calculated using straight-line interpolation between each defined share price level. If the stock price is below $62.50, the executive would not receive an award. If the stock price exceeds $81.00, the executive would receive 150% of their target award. The executive will realize ordinary income, if any, on the MSUs based upon the fair market value of each MSU at vest date.
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2019-2021 LTIP
In 2019, long-term incentive awards were granted to the NEOs in three vehicles: thirty percent (30%) of the total target opportunity was granted in the form of RSUs, twenty percent (20%) in Stock Performance Rights (“SPR”s) and fifty percent (50%) in MSUs. The target value of each award and the total 2019-2021 LTIP opportunity to each NEO is as follows:
Executive  RSU Target
Award
(1)
   SPR Target
Award		   MSU Target
Award
(1)
   
Total 2019-2021

Opportunity		 
Michael G. DeCata
(2)
  $—     $—     $—     $—   
Ronald J. Knutson   91,662    61,107    152,770    305,539 
Shane T. McCarthy   53,539    35,693    89,232    178,464 
(1)
Additional shares are granted to Mr. Knutson in consideration for the
two-year
post-vest holding period applicable to vested shares. The additional shares are based on a
two-year
discount of 17.0%, as determined by an independent valuation.
(2)Mr. DeCata did not participate in the 2019-2021 LTIP; however, he was granted cash and equity awards pursuant to his employment agreement entered into on August 14, 2017, and amended on April 11, 2018, as described in the “Compensation Agreements” section.
The RSUs vested in full upon the completion of the three-year performance cycle on December 31, 2021, as each participant remained continuously employed by the Company through such date. Mr. Knutson is subject to a
two-year
post-vest holding requirement on RSUs granted as part of the 2019-2021 LTIP. The executives cannot transfer or otherwise dispose of
one-hundred
percent (100%) of these awards until January 1, 2024.
The SPRs cliff vested in full on December 31, 2021, as each participant remained continuously employed by the Company through such date. Each participant has five years after this vest date to exercise some or all of the vested SPRs. Additional details on the SPRs include:
The exercise price of the SPR award was equal to $30.54.
The executive will realize ordinary income, if any, on the difference between the exercise price and the fair market value of the SPR at exercise date.
The Company’s trailing weighted average
60-trading
day closing stock price as of December 31, 2021 was $50.77. The MSU award was awarded at Maximum, as the
60-trading
day weighted average closing stock price exceeded $49.00 and the executives received 150.0% of their target MSU award. Mr. Knutson are subject to a
two-year
post-vest holding requirement on MSUs granted as part of the 2019-2021 LTIP. The executives cannot transfer or otherwise dispose of any of these awards until January 1, 2024.
   Threshold  Target  Maximum 
Weighted Average Closing Stock Price (as of December 31, 2021)  $40.00  $44.00  $49.00 
% of Target MSUs Vested   50%   100%   150% 
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COMPENSATION AGREEMENTS
Key terms of compensation agreements currently in effect between the Company and its NEOs are summarized below.
Mr. Michael G. DeCata
Employment Agreement
Mr. DeCata originally became employed under an October 16, 2012 agreement. On August 14, 2017, the Company entered into an employment agreement (“Employment Agreement”) with Michael G. DeCata, as President and Chief Executive Officer. This Employment Agreement replaced and superseded an employment agreement, dated January 12, 2015, by and between the Company and Mr. DeCata.
Pursuant to this Employment Agreement, Mr. DeCata is eligible for a performance-based annual incentive opportunity as determined each year by the Board-approved Annual Incentive Plan. On or before the tenth day following the payment of an AIP bonus to Mr. DeCata, he is entitled to elect to use all or a portion of his
after-tax
AIP bonus to purchase shares of the Company’s common stock. In connection with this election, Mr. DeCata will be entitled to receive an award of RSAs in an amount equal to the number of shares purchased, which vests 3 years from the grant date of the award.
As part of his Employment Agreement, Mr. DeCata was granted cash and equity awards in lieu of his LTIP participation in future years. Mr. DeCata was not eligible for the regular cycle annual LTIP grants for the following three-year performance cycles: 2018-2020; 2019-2021; and 2020-2022. However, to address a potential inconsistency with the Company’s Equity Plan, the Company and Mr. DeCata entered into an amendment of the Employment Agreement (the “Employment Agreement Amendment”) on April 11, 2018 to make changes to the equity award structure set forth in the Employment Agreement (as described furtherCompany’s Proxy Statement for the Annual Meeting of Stockholders to be held on May 23, 2024, under the caption “Remuneration of Executive Officers,” which information is incorporated herein by reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Additional information required by this Item is set forth in the “Outstanding Equity Awards at December 31, 2021” section).
IfCompany’s Proxy Statement for the Company terminates Mr. DeCata without cause, or he terminates his employment for good reason (each as defined in the employment agreement), Mr. DeCata will receive 300%Annual Meeting of his then current base salary payable in monthly installments for a period of 24 months; coverageStockholders to be held on May 23, 2024 under the Company’s health benefit plans for an additional 24 months following termination for Mr. DeCatacaption “Securities Beneficially Owned by Principal Stockholders and his family; and all outstanding unvested equity awards that would have otherwise vested during the
24-month
period had he remained employed during this period, if any, shall immediately vest upon the effective date of the termination. Mr. DeCata will have until the earlier of (A) one year following the effective date of termination (or such longer exercise period that may be provided in an award agreement evidencing such equity award) and (B) the expiration of the term of such equity award to exercise any vested equity award thatManagement” which information is subject to being exercised. This shall apply only to unvested equity awards where vesting is solely service-based, but shall not apply to unvested equity awards where vesting is performance-based in whole or in part.incorporated herein by reference.
If within 24 months following a change in control (as defined in his Employment Agreement, as amended) the Company terminates Mr. DeCata’s employment without cause, or if he terminates his employment for good reason, he will be entitled to receive a lump sum payment equal to two times his then current annual base salary and two times the higher of the target bonus or the actual bonus for the prior year. In addition, Mr. DeCata and his family will be covered under the Company’s health benefit plans for two years following termination. All of Mr. DeCata’s outstanding equity awards, if any, shall immediately vest upon the effective date of termination to the extent not already vested and he shall have until the earlier of (A) one year following the effective date of termination (or such longer exercise period that may be provided in an award agreement evidencing such equity award) and (B) the expiration of the term of such equity award to exercise any equity award that is subject to being exercised. The completion of the Mergers (as defined in the section entitled “Certain Relationships and Related Transactions” included in Part III, Item 13. Certain Relationships and Related Transactions, and Director Independence) constituted a change in control for purposes of the severance provisions in Mr. DeCata’s Employment Agreement.
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In the event Mr. DeCata dies while employed by the Company, his designated beneficiaries will receive an amount equal to two times Mr. DeCata’s then current annual base salary and they will be entitled to coverage under the Company’s health benefit plans for an additional 24 months.
If Mr. DeCata becomes disabled, the Company will pay his compensation at a rate equal to 100% of his then current salary
for twelve months plus his target bonus with respect to the year in which the termination occurs and at a rate equal to 60% of his then current salary for 24 months thereafter plus his target bonus with respect to the year in which the termination occurs. Coverage under the Company’s health benefit plan will be continued for five and
one-half
years.
Mr. DeCata has agreed not to compete with the Company during the period of employment and for a period of 18 months thereafter.
Retirement and Consulting Agreement
On April 4, 2022, Mr. DeCata entered into an agreement pursuant to which he agreed to retire from his positions as President and Chief Executive Officer and as a member of the Board of Directors of the Company on May 1, 2022. The agreement also provided that, effective as of April 4, 2022, Mr. DeCata retired from his position as President and Chief Executive Officer of Lawson Products, Inc., an Illinois corporation (the “Lawson Products Operating Company”), and all other positions with the Lawson Products Operating Company. The Lawson Products Operating Company is a wholly-owned subsidiary of the Company.
In connection with Mr. DeCata’s retirement, the Lawson Products Operating Company and Mr. DeCata entered into a Retirement and Consulting Agreement, dated as of April 4, 2022 (the “DeCata Consulting Agreement”), pursuant to which Mr. DeCata agreed (1) to remain employed as the Chief Executive Officer of the Company through May 1, 2022, (2) that effective as of May 1, 2022, Mr. DeCata will be deemed to have resigned from all his positions with the Company (including his membership on the Board of Directors of the Company) and (3) to thereafter provide during the Consulting Period (as defined below) consulting and advisory services from time to time as may be reasonably requested by the Lawson Products Operating Company’s Chief Executive Officer or a member of the Company’s Board of Directors. The “Consulting Period,” as used in this subsection, means the period commencing on May 1, 2022, and continuing until the earliest of (i) May 1, 2026, (ii) the Lawson Products Operating Company’s termination of Mr. DeCata’s consulting and advisory services and (iii) Mr. DeCata’s death or disability.
The DeCata Consulting Agreement provides that Mr. DeCata will receive through May 1, 2022, (i) his current base salary, (ii) continued eligibility to receive the employee benefits Mr. DeCata currently receives (provided that Mr. DeCata will not be eligible to receive an Annual Incentive Plan award or a Long-Term Incentive Plan award for any period on or after May 1, 2022) and (iii) certain other accrued compensation under his Employment Agreement.
The DeCata Consulting Agreement also provides that (1) during the Consulting Period, Mr. DeCata shall be entitled to receive an annualized amount of $600,000 per year, payable in monthly installments, for each month of the Consulting Period, (2) the Consulting Period shall be deemed to be continued employment for purposes of Mr. DeCata’s existing equity awards that are market stock units or stock performance rights, (3) all of Mr. DeCata’s outstanding restricted stock units will be accelerated as of May 1, 2022, and (4) Mr. DeCata shall continue to be covered under the Lawson Products Operating Company’s group health plan, including any spousal and dependent coverage, at active employee rates, through the end of the Consulting Period. However, the DeCata Consulting Agreement further provides that if the Consulting Period terminates prior to May 1, 2026, for any reason other than (i) a voluntary termination by Mr. DeCata (which does not include a termination because of death or disability) or (ii) a termination by the Lawson Products Operating Company due to Mr. DeCata’s material breach of the DeCata Consulting Agreement, the payments and benefits described in the preceding sentence will continue to be paid or provided through May 1, 2026.
In addition, the DeCata Consulting Agreement obligates Mr. DeCata to provide a general waiver and release of claims in the form prescribed by the DeCata Consulting Agreement no later than June 30, 2022, and obligates Mr. DeCata to comply with certain restrictive covenants.
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Mr. Ronald J. Knutson
Mr. Knutson is employed under an amended and restated employment agreement as of August 29, 2012. The agreement provides that he will be eligible for performance-based annual incentive bonuses, he is eligible to participate in the LTIP and he is eligible to receive various equity-based compensation awards including stock options, SPRs, MSUs, RSAs and stock award grants.
If the Company terminates Mr. Knutson without cause, or he terminates his employment for good reason (each as defined in the employment agreement), Mr. Knutson will receive his then current base salary for two years, a pro rata bonus based on the most recent annual bonus, outplacement services not to exceed $25,000, and coverage under the Company’s health benefit plans for an additional two years following termination.
If within 12 months following a change in control (as defined in his employment agreement) the Company terminates Mr. Knutson’s employment without cause, or if he terminates his employment for good reason, he will be entitled to receive a lump sum payment equal to two times his then current annual base salary and two times the most recent annual bonus. In addition, all previously unvested equity-based compensation awards granted to him will immediately vest and become fully exercisable as of the date of termination for a period of 90 days. Mr. Knutson and his family will be covered under the Company’s health benefit plans for two years following termination and eligible to receive outplacement services not to exceed $25,000. The completion of the Mergers (as defined in the section entitled “Certain Relationships and Related Transactions” included in Part III, Item 13. Certain Relationships and Related Transactions, and Director Independence) constituted a change in control for purposes of the severance provisions in Mr. Knutson’s Employment Agreement.
In the event Mr. Knutson dies while employed by the Company, his designated beneficiaries will receive an amount equal to two times Mr. Knutson’s then current annual base salary and they will be entitled to coverage under the Company’s health benefit plans for an additional 24 months.
If Mr. Knutson becomes disabled, the Company will pay his compensation at a rate equal to 100% of his then current salary for twelve months and at a rate equal to 60% of his then current base salary for 24 months thereafter. Coverage under the Company’s health benefit plan will be continued for five and
one-half
years.
Mr. Knutson has agreed not to compete with the Company during the period of employment and for a period of two years thereafter.
Mr. Shane T. McCarthy
Mr. McCarthy was not employed under an employment agreement immediately prior to his termination from the Company on January 21, 2022; however, certain terms of his prior employment were described under his change in control agreement as of October 15, 2015. This agreement provided that if Mr. McCarthy without cause or good reason was terminated within 1 year of consummation of a change in control (as defined in his change in control agreement), he would be entitled to receive severance in the amount of 12 months of his then current base salary, as well as the greater of his then current target annual bonus payout level and the annual incentive bonus most recently paid to Mr. McCarthy. All of Mr. McCarthy’s outstanding equity awards, if any, would immediately vest upon the effective date of termination to the extent not already vested, and he would have until the earlier of (A) ninety (90) days following the effective date of termination (or such longer exercise period that may be provided in an award agreement evidencing such equity award) and (B) the term of such equity award to exercise any vested equity award that is subject to being exercised.
Mr. McCarthy was eligible for performance-based annual incentive bonuses, as well as participation in the LTIP and he was eligible to receive various equity-based compensation awards including stock options, SPRs, MSUs, RSAs and stock award grants. As stated in his LTIP agreement, any awards would immediately vest in full in the event of a change in control.
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EXECUTIVE COMPENSATION
2021 SUMMARY COMPENSATION TABLE
The following table sets forth the compensation for the last two fiscal years awarded to or earned by each of the Company’s Named Executive Officers.
Name and Principal
Position
  Year   Salary
($)(1)		   Bonus
($)		   Stock
Awards
($)(2)		   SPR/
Option
Awards
($)		   
Non-Equity

Incentive Plan
Compensation
($)(3)		   All Other
Compensation
($)(4)		   Total ($) 
Michael G. DeCata
(5)
   2021   $560,000   $—     $559,963   $—     $328,728   $25,896   $1,474,586 
President and Chief Executive Officer   2020    448,000    —      200,360    —      355,607    20,116    1,024,083 
Ronald J. Knutson   2021    381,924    —      305,538    —      134,517    17,947    839,926 
Executive Vice President, Chief Financial Officer, Treasurer and Controller   2020    354,075    —      305,548    —      145,516    16,833    821,972 
Shane T. McCarthy
(6)
   2021    309,338    —      185,634    —      90,793    14,539    600,304 
Former Senior Vice President, Supply Chain, Product Management & Marketing   2020    285,592    —      185,591    —      98,216    13,976    583,375 
(1)
The amounts listed in this column represent the base salary paid to the NEOs in 2021 and 2020. As discussed in last year’s proxy statement, in order to mitigate the impact of
COVID-19,
the base salary of Mr. DeCata was reduced by 30% and the base salary of Messrs. Knutson and McCarthy were reduced by 25%. These actions were applied effective April 16, 2020 and reversed effective August 1, 2020 for Messrs. Knutson and McCarthy. Mr. DeCata’s base salary was reinstated to $560,000 effective January 1, 2021.
(2)
The amounts in this column represent the aggregate grant date fair value of the
MSU-based
portion of the 2020-2022 LTIP and 2021-2023 LTIP to be awarded at the end of the three-year performance period determined in accordance with FASB Accounting Standards Codification (“ASC”) 718 using a generally accepted valuation methodology. The maximum award that can be earned in year three of the 2021-2023 LTIP if maximum performance is achieved, based on the grant date value of our common stock and assuming a per share price of $81.00, which is the maximum performance goal, is as follows: Mr. DeCata—$807,611; Mr. Knutson—$440,681; and Mr. McCarthy—$222,224. The amounts in this column also represent the restricted stock awards granted in 2021, which cliff vest subject to recipient’s continued employment with the Company. The amounts in this column also represent the performance awards granted in 2021, which are exchangeable for the Company’s common stock, or the equivalent amount in cash, based upon the achievement of certain financial performance metrics.
(3)Amounts represent AIP bonuses earned (rather than paid) in the respective year. The AIP bonuses awarded in 2021 reported above were paid out in 2022.
(4)See All Other Compensation table for details regarding the amounts in this column for 2021.
(5)In 2017, Mr. DeCata was granted cash and equity awards in lieu of his LTIP participation in future years. Mr. DeCata is not eligible for the regular cycle annual LTIP grants for the following three-year performance cycles: 2018-2020; 2019-2021; and 2020-2022.
(6)Mr. McCarthy’s employment with the Company terminated on January 21, 2022.
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ALL OTHER COMPENSATION TABLE
Name and Principal Position  Profit
Sharing
Contribution
(1)		   401(k)
Matching
Contribution
(2)		   Deferred
Compensation
Contributions
(3)		   Disability
Insurance
(4)		   Financial
Planning		   Total 
Michael G. DeCata  $—     $11,600   $10,800   $2,196   $1,300   $25,896 
President and Chief Executive Officer            
Ronald J. Knutson   —      11,600    3,677    2,670    —      17,947 
Executive Vice President, Chief Financial Officer, Treasurer and Controller            
Shane T. McCarthy   —      10,743    774    1,472    1,550    14,539 
Former Senior Vice President, Supply Chain, Product Management & Marketing            
(1)The Company did not make a profit-sharing contribution for 2021.
(2)The Company matches all plan participant contributions equal to 100% on the first 3% of the employee’s contributions and 50% on the next 2% of contributions.
(3)The Company made a deferred compensation contribution of 4.00% of participants’ base salary in excess of the 2021 IRS annual compensation limit of $290,000 to all plan participants, including the NEOs as described above under the “Nonqualified Deferred Compensation” table.
(4)The Company provides individual disability insurance coverage for all Vice Presidents, Executive Vice Presidents and the CEO/President.
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OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2021
   Stock Performance Rights and
Stock Option Awards (1)		   Stock Awards   Stock Awards 
   Number of Securities
Underlying Unexercised
Options/SPRs		   Options/
SPR
Exercise
Price		      Options/
SPR
Expiration
Date		   Number of
shares or
units of stock
that have not
vested		   Market value
of shares or
units of stock
that have not
vested (2)		   Equity
Incentive
Plan Awards:
Number of
unearned
shares, units
or other rights
that have not
yet vested		   Equity
Incentive
Plan Awards:
Market or
payout value
of unearned
shares, units
or other rights
that have not		 
Named Executive
Officer
  Exercisable   Unexercisable 
Michael G. DeCata   162,857    —      25.16    (3)   1/12/2022         
   126,667    —      29.16    (3)   1/12/2022         
   90,476    —      33.16    (3)   1/12/2022         
   17,143    —      25.16    (3)   1/12/2022         
   13,333    —      29.16    (3)   1/12/2022         
   9,524    —      33.16    (3)   1/12/2022         
   15,977    —      18.98    (4)   12/31/2023         
   17,210    —      23.70    (5)   8/14/2024         
   13,667    —      27.70    (5)   8/14/2024         
   10,123    —      31.70    (5)   8/14/2024         
   16,790    —      23.70    (5)   8/14/2024         
   13,333    —      27.70    (5)   8/14/2024         
   9,877    —      31.70    (5)   8/14/2024         
         (6)     2,500    136,875     
         (7)     3,000    164,250     
         (8)     2,641    144,595     
         (9)     2,641    144,595     
         (10)         3,323    181,934 
Ronald J. Knutson   6,208    —      25.16    (11)   12/31/2022         
   9,023    —      18.98    (4)   12/31/2023         
   7,983    —      22.75    (12)   12/31/2024         
   8,742    —      24.70    (13)   12/31/2025         
   5,017    —      30.54    (14)   12/31/2026         
         (15)     1,766    96,688     
         (16)     1,766    96,688     
         (8)     1,441    78,895     
         (9)     1,441    78,895     
         (17)         3,627    198,567 
         (10)         1,813    99,262 
Shane T. McCarthy   4,440    —      22.75    (12)   12/31/2024         
(former executive)   5,057    —      24.70    (13)   12/31/2025         
   2,930    —      30.54    (14)   12/31/2026         
         (15)     890    48,728     
         (16)     890    48,728     
         (8)     727    39,803     
         (9)     727    39,803     
         (17)         1,828    100,083 
         (10)         914    50,042 
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(1)The data in this chart represents grants under SPRs, which have similar characteristics to options as they are tied to performance of the Company’s stock price but are settled in cash upon exercise.
(2)RSUs are valued at closing stock price at December 31, 2021 of $54.75.
(3)
Mr. DeCata was awarded an option to purchase 40,000 shares of common stock and 380,000 SPRs in lieu of his participation in the 2015-2017 LTIP. The options and SPRs were granted as follows: (a) 17,143 of the options and 162,857 of the SPRs have an exercise price of $25.16, (b) 13,333 of the options and 126,667 of the SPRs have an exercise price of $29.16 and (c) 9,524 of the options and 90,476 of the SPRs have an exercise price of $33.16.
One-third
of each tranche of options and SPRs vested and became exercisable on the first, second and third anniversaries of the grant date. In connection with the closing of the transaction between Lawson Products, Gexpro Services and TestEquity, and the terms of our Insider Trading Policy, Mr. DeCata was subject to the limitations of exercising equity vehicles during a blackout period in effect during the expiration date of the awards. Trading may resume on the 3rd business day following the Company’s earnings release for Q1 2022 and at such time, Mr. DeCata will have a period up to 30 days, as determined by the Committee, to exercise these awards.
(4)Represents the SPRs granted on 1/15/16, as part of the 2016-2018 LTIP, which vested on 12/31/2018.
(5)
Mr. DeCata was awarded an option to purchase 40,000 shares of common stock and 41,000 SPRs in lieu of his participation in the regular cycle annual LTIP grants for the following three-year performance cycles: 2018-2020, 2019-2021 and 2020-2022. The options and SPRs were granted as follows: (a) 16,790 of the options and 17,210 of the SPRs have an exercise price of $23.70, (b) 13,333 of the options and 13,667 of the SPRs have an exercise price of $27.70 and (c) 9,877 of the options and 10,123 of the SPRs have an exercise price of $31.70.
One-third
of each tranche of options and SPRs vested and became exercisable on the first, second and third anniversaries of the grant date.
(6)Mr. DeCata was awarded 2,500 RSAs in connection with his purchase of Company common stock following the payment of his AIP bonus. The right to receive shares of common stock shall vest in full on March 2, 2023, provided Mr. DeCata does not sell or transfer the purchased shares prior to this date.
(7)Mr. DeCata was awarded 3,000 RSAs in connection with his purchase of Company common stock following the payment of his AIP bonus. The right to receive shares of common stock shall vest in full on March 9, 2023, provided Mr. DeCata does not sell or transfer the purchased shares prior to this date.
(8)Represents the RSUs granted on 1/5/21 as part of the 2021-2023 LTIP, which cliff vest on 12/31/2023 subject to the recipient’s continued employment with the Company.
(9)Represents the PAs granted on 1/5/2021 as part of the 2021-2023 LTIP. PAs are exchangeable for the Company’s common stock, or the equivalent amount in cash, based upon the achievement of certain financial performance metrics during the performance period. PAs reflect threshold awards (i.e., the minimum payout level), as Company ROIC performance for the performance period is below the threshold performance level.
(10)Represents the MSUs granted on 1/5/21 as part of the 2021-2023 LTIP award, which cliff vest on 12/31/2023 based on the trailing 60 trading day average closing price of the Company’s common stock at vest date on December 31, 2023 and subject to the recipient’s continued employment with the Company. MSUs reflect threshold awards (i.e., the minimum payout level), as closing stock price at December 31, 2021 of $54.75 per share does not meet threshold price of $61.50.
(11)Represents the SPRs granted on 1/13/15 as part of the 2015-2017 LTIP, which vested on 12/31/2017.
(12)Represents the SPRs granted on 1/12/17 as part of the 2017-2019 LTIP, which vested on 12/31/2019.
(13)Represents the SPRs granted on 1/8/18 as part of the 2018-2020 LTIP, which vested on 12/31/2020.
(14)Represents the SPRs granted on 3/5/19 as part of the 2019-2021 LTIP, which cliff vest on 12/31/2021 subject to the recipient’s continued employment with the Company.
(15)Represents the RSUs granted on 2/25/20 as part of the 2020-2022 LTIP, which cliff vest on 12/31/2022 subject to the recipient’s continued employment with the Company.
(16)Represents the PAs granted on 2/25/2020 as part of the 2020-2022 LTIP. PAs are exchangeable for the Company’s common stock, or the equivalent amount in cash, based upon the achievement of certain financial performance metrics during the performance period. PAs reflect threshold awards (i.e., the minimum payout level), as Company ROIC performance for the performance period is below the threshold performance level.
(17)Represents the MSUs granted on 2/25/20 as part of the 2020-2022 LTIP award, which cliff vest on 12/31/2022 based on the trailing 60 trading day average closing price of the Company’s common stock at vest date on December 31, 2022 and subject to the recipient’s continued employment with the Company. MSUs reflect threshold awards (i.e., the minimum payout level), as closing stock price at December 31, 2021 of $54.75 per share does not meet threshold price of $61.50.
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NONQUALIFIED DEFERRED COMPENSATION
Under the Company’s 2004 Executive Deferral Plan, certain executives, including NEOs, may defer portions of their base salary, bonus, and LTIP award amounts. Deferral elections are made by eligible executives by the end of the year proceeding the plan year for which the election is made. An executive may defer a minimum of $2,000 aggregate of base salary, bonus and/or LTIP award. The maximum deferral amount for any plan year is 80% of base salary, 100% of bonus and 100% of LTIP amounts. The Company also makes a contribution to the Deferral Plan equal to the amount the executives, including NEOs, would have received under the Company’s
tax-qualified
401(k) plan, but for Internal Revenue Code limits.
The investment options available to an executive include funds generally similar to or as available through the Company’s qualified retirement plan. The Company does not provide for any above market return for participants in the 2004 Executive Deferral Plan.
An executive may elect to receive distributions under three scenarios, receiving benefits in either a lump sum or in annual installments up to five years in the event of termination and up to fifteen years in the event of death or disability. Upon demonstrating an unforeseeable financial emergency and receipt of approval from the Compensation Committee, an executive may interrupt deferral or be allowed to access funds in his deferred compensation account. In the event of a change in control of the Company, an independent third-party administrator would be appointed to oversee the plan.
Named Executive Officer  Executive
Contributions
in Last FY
(1)		   Registrant
Contributions
in Last FY
(2)		   Aggregate
Earnings in Last
FY		   Aggregate
Balance at Last
FYE
(3)		 
Michael G. DeCata  $—     $10,800   $377,632   $3,116,282 
Ronald J. Knutson   168,323    3,677    252,169    2,392,134 
Shane T. McCarthy (former executive)   30,934    774    96,768    1,288,822 
(1)Represents contributions in 2022 pertaining to 2021 earnings.
(2)Represents 401(k) contributions in excess of the 2021 IRS annual compensation limit of $290,000. The Company did not make a profit-sharing contribution based on 2021 results.
(3)Amounts reported at the beginning of the fiscal year were $2,727,850, $1,967,965, and $1,160,347 for Messrs. DeCata, Knutson and McCarthy.
Defined Benefit Plans
We do not maintain or contribute to any defined benefit pension plans or supplemental executive retirement plans for our NEOs.
DIRECTOR COMPENSATION IN 2021
Director Compensation
In 2021, Lawson’s
non-employee
directors were eligible to receive an annual cash retainer of $75,000 (paid on a quarterly basis) for participating in the Board and Board committee meetings. The directors also received a regular cycle annual restricted stock grant with a grant date fair value of $75,000 that cliff-vests upon the
one-year
anniversary of the date of grant. Directors’ travel expenses for attending meetings are reimbursed by the Company.
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The independent Lead Director received an additional $25,000 for his services, and the Chairpersons of the respective Board committees received additional compensation as follows:
Committee Chairperson  Additional Annual
Compensation		 
Independent Lead Director  $25,000 
Audit   20,000 
Compensation   15,000 
Nominating and Governance   7,500 
Director Compensation Table
The following table shows compensation earned in 2021 by
non-employee
directors.
Director  2021 Fees Earned
or Paid In Cash		   2021 Stock
Awards
(1)
   2021 Total 
Andrew B. Albert  $82,500   $75,000   $157,500 
I. Steven Edelson   75,000    75,000    150,000 
Charles D. Hale
(2)
   37,500    75,000    112,500 
Lee S. Hillman   135,000    75,000    210,000 
J. Bryan King
(3)
   —      —      —   
Mark F. Moon   75,000    75,000    150,000 
Bianca A. Rhodes
(4)
   65,625    75,000    140,625 
(1)
Represents the fair market value of the RSUs for 2021 Board Service. As of December 31, 2021, each of our
non-employee
directors held 1,399 shares of unvested restricted stock, with the exception of J. Bryan King.
(2)Effective May 11, 2021, Charles D. Hale resigned from the Board and committees he served.
(3)J. Bryan King waived his right to the regular cycle annual restricted stock grant for 2021, as well as any director fees for 2021.
(4)Effective May 11, 2021, Bianca A. Rhodes was elected to the Board and the committees she serves.
ADDITIONAL INFORMATION
Post-Vest Holding Requirement
In 2016, the Compensation Committee instituted a
two-year
post-vest holding requirement on market stock units (“MSUs”), restricted stock units (“RSUs”), restricted stock awards (“RSAs”) and performance awards (“PAs”) granted to the top three Named Executive Officers—the President and Chief Executive Officer, and the Chief Financial Officer, Treasurer and Controller to further align these executives’ long-term interests with those of our stockholders. The executives subject to the holding requirement cannot transfer or otherwise dispose of
one-hundred
percent (100%) of certain equity awards granted after January 1, 2016, which vest, net of taxes, and convert to shares of common stock two years after such awards vest.
Clawback Policy
The Board of Directors approved a policy for recoupment of incentive compensation (the “Clawback Policy”). The Board of Directors adopted the Clawback Policy in order to protect the Company in the event that the Company is required to prepare an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement under the securities laws.
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If such an event occurs, the Company will recover from any current or former executive officer of the Company who received incentive-based compensation (including stock options awarded as compensation) based on the erroneous data during the
3-year
period preceding the date on which the Company is required to prepare an accounting restatement in excess of what would have been paid to the executive officer under the accounting restatement, as determined by the Compensation Committee, in accordance with Section 10D of the Securities Exchange Act of 1934 as added by Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and any applicable guidance or rules issued or promulgated thereunder.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Beneficial Ownership Table
The following table sets forth information as of April 25, 2022, concerning the beneficial ownership by each person (including any “group” as defined in Section 13(d)(3) of the Exchange Act) known by Lawson to own beneficially more than 5% of the outstanding shares of Lawson common stock, each of Lawson’s directors, each of Lawson’s Named Executive Officers, and all of Lawson’s executive officers and directors as a group. Unless otherwise noted below, the address of each beneficial owner listed in the table is 8770 W. Bryn Mawr Avenue, Suite 900, Chicago, Illinois, 60631. Because the voting or dispositive power of certain shares listed in the following table is shared, in some cases the same securities are included with more than one name in the table. The total number of shares of Lawson common stock issued and outstanding as of April 25, 2022, is 19,668,463.
Name of Beneficial Owner
  
Number of Shares
Beneficially Owned
   
% of class
 
Five Percent Stockholders:
    
Luther King Capital Management Corporation
(1)

301 Commerce Suite 1600 Forth Worth, Texas 76102
   14,643,508    74.5% 
Dimensional Fund Advisors LP
(2)

6300 Bee Cave Road, Building One Austin, Texas 78746
   467,778    2.4% 
Non-Executive
Directors:
    
Andrew H. Albert
(3)
   55,519    0.3% 
I. Steven Edelson
(3)
   40,519    0.2% 
Lee S. Hillman
(3)
   44,808    0.2% 
J. Bryan King
(4)
   14,398,056    73.2% 
Mark F. Moon
(3)
   7,297    * 
Bianca A. Rhodes
(3)
   1,399    * 
Named Executive Officers:
    
Michael G. DeCata
(5)
   121,432    0.6% 
Ronald J. Knutson
   35,746   0.2% 
Shane T. McCarthy
   12,467    * 
All Executive Officers and Directors as a group (12 persons)
   14,722,275    74.9% 
*
Less than 0.1 percent.
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(1)
Based on a Schedule 13D filed with the SEC by Luther King Capital Management Corporation (“
LKCM
”), J. Bryan King and various other persons and entities (as amended by amendments thereto through and including the Amendment No. 23 to Schedule 13D/A filed with the SEC on April 4, 2022). Includes (i) 1,699,871 shares held by PDLP Lawson, LLC (“
PDP
”), a wholly-owned subsidiary of LKCM Private Discipline Master Fund, SPC (“
Master Fund
”), (ii) 250,000 shares held by LKCM Investment Partnership, L.P. (“
LIP
”), (iii) 26,827 shares held by LKCM
Micro-Cap
Partnership, L.P. (“
Micro
”), (iv) 10,490 shares held by LKCM Core Discipline, L.P. (“
Core
”), (v) 592,326 shares held by LKCM Headwater Investments II, L.P. (“
HW2
”), (vi) 1,761,494 shares held by Headwater Lawson Investors, LLC (“
HLI
”), (vii) 7,000,000 shares held by 301 HW Opus Investors, LLC, (“
Gexpro Services Stockholder
”), (viii) 3,300,000 shares held by LKCM TE Investors, LLC (“
TestEquity Equityholder
”) and (ix) 2,500 shares held by a separately managed portfolio for which LKCM serves as investment manager. LKCM is (A) the investment manager for Master Fund, PDP, LIP, Micro, Core, HW2 and HLI, (B) the investment manager for a controlling member of Gexpro Services Stockholder and (C) the investment manager for two controlling members of TestEquity Equityholder. J. Luther King, Jr. is a controlling stockholder of LKCM and a controlling member of the general partner of LIP. J. Luther King, Jr. and J. Bryan King are controlling members of the general partner of the general partners of each of Micro and Core. J. Bryan King is (A) a controlling member of the general partner of HW2, (B) a controlling member of the general partner of a controlling member of Gexpro Services Stockholder, (C) a controlling member of the general partners of each of two controlling members of TestEquity Equityholder and (D) the president of HLI. J. Luther King, Jr. and J. Bryan King are controlling members of the general partner of the sole holder of the management shares of Master Fund. J. Bryan King is the son of J. Luther King, Jr.
The share amounts shown in the table and this footnote do not include any of the up to 1,000,000 additional shares of Lawson common stock potentially issuable to the Gexpro Services Stockholder under the earnout provisions of the Gexpro Services Merger Agreement. The share amounts shown in the table and this footnote do not include any of the up to 700,000 additional shares of Lawson common stock potentially issuable to the TestEquity Equityholder under the earnout provisions of the TestEquity Merger Agreement. See the section entitled “Certain Relationships and Related Transactions – Business Combination with TestEquity and Gexpro Services” included in Part III, Item 13. Certain Relationships and Related Transactions, and Director Independence for additional information about the Merger Agreements.
Each of the persons and entities listed in this footnote expressly disclaims membership in a group under the Exchange Act and expressly disclaims beneficial ownership of the securities reported in the table, except to the extent of its pecuniary interest therein. See also footnote 4.
(2)
Based on a Schedule 13G/A filed with the SEC on February 8, 2022, Dimensional Fund Advisors LP beneficially held sole voting power for 456,459 shares and held sole dispositive power for 467,778 shares as of December 31, 2021.
(3)
Beneficial ownership includes 1,399 RSUs scheduled to vest within 60 days of April 25, 2022.
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(4)
Based on a Schedule 13D filed with the SEC by LKCM, J. Bryan King and various other persons and entities (as amended by amendments thereto through and including the Amendment No. 23 to Schedule 13D/A filed with the SEC on April 4, 2022). Includes (i) 1,699,871 shares held by PDP, (ii) 26,827 shares held by Micro, (iii) 10,490 shares held by Core, (iv) 592,326 shares held by HW2, (v) 1,761,494 shares held by HLI, (vi) 7,000,000 shares held by Gexpro Services Stockholder, (vii) 3,300,000 shares held by TestEquity Equityholder and (viii) 7,048 shares held directly by J. Bryan King. LKCM Private Discipline Management, L.P. (“
PD Management
”) is the sole holder of the management shares of Master Fund (which wholly owns PDP), and LKCM Alternative Management, LLC (“
Alternative
”) is the general partner of PD Management. Alternative is the general partner of LKCM
Micro-Cap
Management, L.P. (“
Micro GP
”), which is the general partner of Micro. Alternative is the general partner of LKCM Core Discipline Management, L.P. (“
Core GP
”), which is the general partner of Core. LKCM Headwater Investments II GP, L.P. (“
HW2 GP
”) is the general partner of HW2. LKCM Headwater Investments III GP, L.P. (“
HW3 GP
”) is the general partner of a controlling member of Gexpro Services Stockholder. LKCM Headwater II Sidecar Partnership GP, L.P. (“
Sidecar GP”
) is the general partner of LKCM Headwater II Sidecar Partnership, L.P. (“
Sidecar
”). HW2 and Sidecar are controlling members of TestEquity Equityholder. J. Bryan King is a controlling member of Alternative, HW2 GP, HW3 GP and Sidecar GP and is the president of HLI.
The share amounts shown in the table and this footnote do not include any of the up to 1,000,000 additional shares of Lawson common stock potentially issuable to the Gexpro Services Stockholder under the earnout provisions of the Gexpro Services Merger Agreement. The share amounts shown in the table and this footnote do not include any of the up to 700,000 additional shares of Lawson common stock potentially issuable to the TestEquity Equityholder under the earnout provisions of the TestEquity Merger Agreement. See the section entitled “Certain Relationships and Related Transactions – Business Combination with TestEquity and Gexpro Services” included in Part III, Item 13. Certain Relationships and Related Transactions, and Director Independence for additional information about the Merger Agreements.
J. Bryan King expressly disclaims beneficial ownership of the securities reported herein, except to the extent of his pecuniary interest therein. See also footnote 1.
(5)
Beneficial ownership includes 8,141 RSUs that vest on May 1, 2022 pursuant to the DeCata Consulting Agreement. See the section entitled “Compensatory Agreements—Mr. Michael G. DeCata—Retirement and Consulting Agreement” included in Part III. Item 11. Executive Compensation for additional information.
Equity Compensation Plan Information

The following table provides information as of December 31, 20212023 regarding the number of shares of DSG common stock that were available for issuance under the Company’s equity compensation plans which are described in greater detail in Note 1710 – Stock-Based Compensation in the ConsolidatedItem 8. Financial Statements included in the Original Form
10-K.
and Supplementary Data.
Plan category
  Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(1)		   
Weighted-average

exercise price of
outstanding options,
warrants and rights
(1) (2)		   Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in the first column)		 
Equity compensation plans approved by security holders
   374,572   $27.70    164,464 
Equity compensation plans not approved by security holders
   —      —      —   
  
 
 
   
 
 
   
 
 
 
Total
   374,572   $27.70    164,464 
  
 
 
   
 
 
   
 
 
 
93
(1)
Includes potential common stock issuance of 72,229 from restricted stock awards, 182,480 from market stock units, 80,000 from stock options and 39,863 from performance awards.
(2)
Weighted-average exercise price of 80,000 stock options.
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Plan categoryNumber of securities to be issued upon exercise of outstanding options, warrants and rightsWeighted-average exercise price of outstanding options, warrants and rightsNumber of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column)
Equity compensation plans approved by stockholders
Stock options1,880,067$37.53 
Other stock units (1)
300,891N/A
Equity compensation plans not approved by stockholders—— —
Total2,180,958$37.53 1,161,687
(1)Includes potential DSG common stock issuance of 98,216 from restricted stock awards, 163,555 from market stock units and 39,120 from performance awards.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Certain Relationships and Related Party Transactions

The Company’s policy regarding related party transactionsinformation required by this Item is outlined in the Code of Conduct which is applicable to all employees and sales representatives and is available on our website at
www.lawsonproducts.com
in the investor relations corporate governance section. Additionally, all directors and senior officers of the Company must complete an annual questionnaire in which they are required to disclose in writing any related party transactions.
The Company’s policy is for all transactions between the Company and any related person to be promptly reported to the Company’s Secretary and General Counsel who will gather the relevant information about the transaction and present the information to the Audit Committee. The Audit Committee then determines whether the transaction is a material related party transaction to be presented to the Board of Directors. The Board of Directors then approves, ratifies, or rejects the transaction. A majority of the members of the Company’s Board of Directors and a majority of independent and disinterested directors must approve the transaction for it to be ratified. The Board of Directors only approves those proposed transactions that are in, or not inconsistent with, the best interests of the Company and its stockholders.
Business Combination with TestEquity and Gexpro Services
On December 29, 2021, Lawson entered into:
an Agreement and Plan of Merger (the “
TestEquity Merger Agreement
”) by and among (i) LKCM TE Investors, LLC, a Delaware limited liability company (the “
TestEquity Equityholder
”), (ii) TestEquity Acquisition, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the TestEquity Equityholder (“
TestEquity
”), (iii) Lawson and (iv) Tide Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary of Lawson (“
Merger Sub 1
”), pursuant to the terms and subject to the conditions of which the parties agreed, among other things, that Merger Sub 1 would merge with and into TestEquity, with TestEquity surviving the merger as a wholly-owned subsidiary of Lawson (the “
TestEquity Merger
”); and
an Agreement and Plan of Merger (the “
Gexpro Services Merger Agreement
” and, together with the TestEquity Merger Agreement, the “
Merger Agreements
”) by and among (i) 301 HW Opus Investors, LLC, a Delaware limited liability company (the “
Gexpro Services Stockholder
”), (ii) 301 HW Opus Holdings, Inc., a Delaware corporation and a wholly-owned subsidiary of the Gexpro Services Stockholder (“
Gexpro Services
”), (iii) Lawson and (iv) Gulf Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Lawson (“
Merger Sub 2
”), pursuant to the terms and subject to the conditions of which the parties agreed, among other things, that Merger Sub 2 would merge with and into Gexpro Services, with Gexpro Services surviving the merger as a wholly-owned subsidiary of Lawson (the “
Gexpro Services Merger
” and, together with the TestEquity Merger, the “
Mergers
”).
On April 1, 2022 (the “
Closing Date
”), the TestEquity Merger was consummated pursuant to the TestEquity Merger Agreement. In accordance with the TestEquity Merger Agreement, Merger Sub 1 merged with and into TestEquity, with TestEquity surviving as a wholly-owned subsidiary of Lawson. In accordance with and under the terms of the TestEquity Merger Agreement, in connection with the closing of the TestEquity Merger on the Closing Date, Lawson: (i) issued to the TestEquity Equityholder 3,300,000 shares of Lawson common stock, (ii) on behalf of TestEquity, paid certain indebtedness of TestEquity and (iii) on behalf of TestEquity, paid certain transaction expenses of TestEquity. The TestEquity Merger Agreement provides that up to an additional 700,000 shares of Lawson common stock will be potentially issuable to the TestEquity Equityholder in accordance with, and subject to the terms and conditions of, the earnout provisions of the TestEquity Merger Agreement.
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Table of Contents
On the Closing Date, the Gexpro Services Merger was consummated pursuant to the Gexpro Services Merger Agreement. In accordance with the Gexpro Services Merger Agreement, Merger Sub 2 merged with and into Gexpro Services, with Gexpro Services surviving as a wholly-owned subsidiary of Lawson. In accordance with and under the terms of the Gexpro Services Merger Agreement, in connection with the closing of the Gexpro Services Merger on the Closing Date, Lawson: (i) issued to the Gexpro Services Stockholder 7,000,000 shares of Common Stock, (ii) on behalf of Gexpro Services, paid certain indebtedness of Gexpro Services and (iii) on behalf of Gexpro Services, paid certain specified transaction expenses of Gexpro Services. The Gexpro Services Merger Agreement provides that up to an additional 1,000,000 shares of Lawson common stock will be potentially issuable to the Gexpro Services Stockholder in accordance with, and subject to the terms and conditions of, the earnout provisions of the Gexpro Services Merger Agreement.
Based on the $38.69 closing price of Lawson common stock on the NASDAQ Global Select Market on the Closing Date, (i) the 3,300,000 shares of Lawson common stock issued to the TestEquity Equityholder had a value of approximately $127.7 million and (ii) the 7,000,000 shares of Lawson common stock issued to the Gexpro Services Stockholder had a value of approximately $270.8 million.
As of the Closing Date, entities affiliated with LKCM and J. Bryan King, including private investment partnerships for which LKCM serves as investment manager, owned a majority of the ownership interests in the TestEquity Equityholder (which in turn owned all of the outstanding equity interests of TestEquity as of immediately prior to the completion of the TestEquity Merger, and which received all of the shares of Lawson common stock issued in connection with the TestEquity Merger). As of the Closing Date, J. Bryan King was a director of the TestEquity Equityholder. In addition, as of the Closing Date, Mark F. Moon (a member of the Lawson board of directors) was a director of, and held a direct or indirect equity interest in, the TestEquity Equityholder.
As of the Closing Date, entities affiliated with LKCM and J. Bryan King, including private investment partnerships for which LKCM serves as investment manager, owned a majority of the ownership interests in the Gexpro Services Stockholder (which in turn owned all of the outstanding stock of Gexpro Services as of immediately prior to the completion of the Gexpro Services Merger, and which received all of the shares of Lawson common stock issued in connection with the Gexpro Services Merger).
Registration Rights Agreement
In connection with the consummation of the Mergers, Lawson, the TestEquity Equityholder and the Gexpro Services Stockholder entered into a Registration Rights Agreement, dated as of April 1, 2022 (the “
Registration Rights Agreement
”), pursuant to which, among other things, Lawson has agreed to register for resale, subject to the terms and conditions set forth therein, any and all Registrable Securities.
“
Registrable Securities
” means any and all (i) shares of Lawson common stock beneficially owned by the Demand Shareholders (as defined below) and (ii) other equity securities issued or issuable directly or indirectly with respect to the securities referred to in the foregoing clause (i) by way of conversion or exchange thereof or share dividend or share split or in connection with a combination of shares, recapitalization, reclassification, merger, amalgamation, arrangement, consolidation or other reorganization. “
Demand Shareholders
” means the TestEquity Equityholder, the Gexpro Services Stockholder and their respective transferees that become parties to the Registration Rights Agreement pursuant to the terms set forth in the Registration Rights Agreement.Company’s Proxy Statement for the Annual Meeting of Stockholders to be held on May 23, 2024 under the caption “Election of Directors” and “Certain Relationships and Related Transactions” which information is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information required under this Item is set forth in the Company’s Proxy Statement for the Annual Meeting of Stockholders to be held on May 23, 2024 under the caption “Fees Paid to Independent Auditors” which information is incorporated herein by reference.

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The Registration Rights Agreement provides that, subject to the terms and conditions thereof, and subject to the availability of Form
S-3
to Lawson, any Demand Shareholder may require Lawson to file one or more Form
S-3
registration statements, providing for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the “
Securities Act
”), relating to the offer and sale, from time to time, of an amount of Registrable Securities then held by such Demand Shareholders that equals or is greater than the Registrable Amount. “
Registrable Amount
” means an amount of Registrable Securities having an aggregate value of at least $5 million (based on the anticipated offering price (as reasonably determined in good faith by Lawson)), without regard to any underwriting discount or commission, or such lesser amount of Registrable Securities as would result in the disposition of all of the Registrable Securities beneficially owned by the applicable Demand Shareholders; provided, that such lesser amount shall have an aggregate value of at least $2 million (based on the anticipated offering price (as reasonably determined in good faith by Lawson)), without regard to any underwriting discount or commission.
The Registration Rights Agreement also provides that, if Lawson is ineligible under law to register Registrable Securities on a registration statement on Form
S-3
or is so eligible but has failed to comply with its obligations described in the prior paragraph, any Demand Shareholders will be entitled to make no more than four (4) written requests of Lawson for registration under Securities Act of an amount of Registrable Securities then held by such requested Demand Shareholders that equals or is greater than the Registrable Amount. In addition, the Registration Rights Agreement entitles the Demand Shareholders, subject to the terms and conditions set forth therein, to certain “piggyback” registration rights in connection with other registrations by Lawson of any shares of Lawson common stock under the Securities Act, subject to certain exceptions.
The Registration Rights Agreement provides that any particular securities constituting Registrable Securities will cease to be Registrable Securities when they (i) have been effectively registered or qualified for sale by prospectus filed under the Securities Act and disposed of in accordance with the registration statement covering such securities, or (ii) may be sold pursuant to Rule 144 under the Securities Act without regard to volume limitations or other restrictions on transfer thereunder. The Registration Rights Agreement also provides that the registration rights granted thereunder will terminate, as to any holder of Registrable Securities, on the earlier to occur of (a) the date on which all Registrable Securities held by such holder have been disposed of, or (b) the date on which all Registrable Securities held by such holder may be sold without registration in compliance with Rule 144 without regard to volume limitations or other restrictions on transfer thereunder.
Inventory Purchases
During the year ended December 31, 2020, Lawson purchased approximately $0.9 million of inventory from a company owned by an immediate relative of a Board member, I. Steven Edelson, at fair market value.
During the year ended December 31, 2021, Lawson purchased approximately $0.12 million of inventory from a company owned by an immediate relative of a Board member, I. Steven Edelson, at fair market value.
During the three months ended March 31, 2022, Lawson purchased approximately $0.5 million of inventory from a company owned by LKCM at fair market value. The entire value of the purchase was prepaid per the terms of the purchase agreement. Approximately $0.2 million of the inventory was received by the end of the first quarter 2022, with the remaining amount scheduled to be received in the second quarter 2022.
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Table of Contents
Information about Certain Beneficial Owners of Lawson Common Stock
As of April 25, 2022, LKCM and J. Bryan King beneficially owned approximately 74.5% and 73.2%, respectively, of the issued and outstanding shares of Lawson common stock. Mr. King is the Chairman of the Board of Directors of Lawson, and Mr. King has been appointed to also serve as President and Chief Executive Officer effective May 1, 2022. For additional information about the beneficial ownership of Lawson common stock by LKCM and J. Bryan King, and their affiliated entities holding such shares of Lawson common stock, see the section entitled “Beneficial Ownership Table” included in Part III. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, which section is incorporated into this Item 13 by reference. As a result of such beneficial ownership, LKCM and Mr. King are able to exercise significant control over the election of directors to the Board of Directors of Lawson and the vote on all other matters submitted to a vote of Lawson’s stockholders.
Determination of Director Independence
The Company’s Board of Directors has determined that directors Andrew B. Albert, I. Steven Edelson, Lee S. Hillman, Mark F. Moon and Bianca A. Rhodes are independent within the meaning of the rules of The Nasdaq Stock Market. In determining independence, the Board of Directors considered the specific criteria for independence under The Nasdaq Stock Market rules and also the facts and circumstances of any other relationships of individual directors with the Company. Mr. King and Mr. DeCata are not considered independent directors. For additional information about the independence of our directors, see the sections entitled “Corporate Governance—The Audit Committee,” “Corporate Governance—The Compensation Committee” and “Corporate Governance—The Nominating and Governance Committee” included in Part III. Item 10. Directors, Executive Officers and Corporation Governance, which sections are incorporated into this Item 13 by reference.
The independent directors and the committees of the Board of Directors regularly meet in executive session without the presence of any management directors or representatives.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES.
BDO USA, LLP was the Company’s independent registered public accounting firm (“independent auditor”) in 2021 and 2020. Aggregate fees for professional services rendered for the Company by BDO USA, LLP for such years were as follows:
   
Year Ended December 31,
 
   
2021
  
2020
 
Audit Fees
  $745,710  $857,686 
Audit-Related Fees
   —     —   
Tax Fees
   162,242   163,228 
All Other Fees
   —     —   
Percentage of Total Fees Attributable to
Non-Audit
(“Other”) Fees
   —  %   —  % 
  
 
 
  
 
 
 
Total Fees
  $907,952  $1,020,914 
  
 
 
  
 
 
 
Audit Fees
Audit services include fees for the annual audit, review of the Company’s reports on
Form 10-Q
each year, consulting on accounting and auditing matters and fees related to BDO USA, LLP’s audit of the Company’s effectiveness of internal control over financial reporting as required by the Rule 404 Sarbanes-Oxley Act of 2002.
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Table of Contents
Audit-Related Fees
The Company did not pay to BDO USA, LLP any audit-related fees in 2021 or 2020.
Tax Fees
Aggregate fees of $162,242 and $163,228 billed by BDO USA, LLP in 2021 and 2020, respectively, are comprised of domestic and international income tax compliance and tax consulting services.
All Other Fees
The Company did not pay any other fees to BDO USA, LLP in 2021 and 2020.
Pre-Approval
of Services by Independent Auditor
The Audit Committee has adopted policies and procedures for the
pre-approval
of the audit and
non-audit
services performed by the independent auditor to assure that the provision of such services does not impair the auditor’s independence. The Audit Committee approves all audit fees and terms for all services provided by the independent auditor and considers whether these services are compatible with the auditor’s independence. The Chairman of the Audit Committee may approve additional proposed services that arise between Audit Committee meetings provided that the decision to approve the service is presented at the next scheduled Audit Committee meeting. All
non-audit
services provided by the independent auditor must be
pre-approved
by the Audit Committee Chairman prior to the engagement and ratified by the Audit Committee. The Audit Committee
pre-approved
all audit and permitted
non-audit
services by the Company’s independent auditors in 2021.
Any proposed engagement that does not fit within the definition of a
pre-approved
service may be presented to the Audit Committee for consideration at its next regular meeting or, if earlier consideration is required, to the Audit Committee or one or more of its members. The member or members to whom such authority is delegated shall report any specific approval of services at the Audit Committee’s next regular meeting. The Audit Committee will regularly review summary reports detailing all services being provided to the Company by its independent auditor.
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Table of Contents
PART IV

ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a)
(1) The consolidated financial statements of Lawson included in Part II, Item 8 of the Original Form
10-K
were filed as part of the Original Form
10-K.
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES.
(2) Schedule II included(a)    (1)    See Index to Financial Statements and Supplementary Data in Part II, Item 8 ofon page 43.

    (2)    All other financial statement schedules are omitted because they are inapplicable, not required under the Original Form
10-K
was filed as part ofinstructions, or the Original Form
10-K.
information is reflected in the financial statements or notes thereto.

(3)    Exhibits:

Exhibit
Number
Description of Exhibit
Exhibit
Number
2.1†
Description of Exhibit
2.1†Agreement and Plan of Merger, dated as of December 29, 2021, by and among LKCM TE Investors, LLC, TestEquity Acquisition, LLC, the Company Lawson Products, Inc. and Tide Sub, LLC, incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K (File No. 000-10546) filed January 4, 2022.
2.2†
2.2†
Agreement and Plan of Merger, dated as of December 29, 2021, by and among 301 HW Opus Investors, LLC, 301 HW Opus Holdings, Inc., the CompanyLawson Products, Inc. and Gulf Sub, Inc., incorporated herein by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K (File No. 000-10546) filed January 4, 2022.
2.3†
Stock Purchase Agreement, dated as of March 30, 2023, by and among HIS Company, Inc., Distribution Solutions Group, Inc., HIS Company, Inc. Employee Stock Ownership Trust, which is maintained pursuant to and in connection with the HIS Company, Inc. Employee Stock Ownership Plan, acting through GreatBanc Trust Company, not in its corporate capacity, but solely in its capacity as trustee of HIS Company, Inc. Employee Stock Ownership Trust, and Ellis Moseley, solely in his capacity as the representative of HIS Company, Inc. Employee Stock Ownership Trust, incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K (File No. 000-10546) filed March 31, 2023.
3.1
AmendedThird Amended and Restated Certificate of Incorporation of the Company, effective as of August 31, 2023, incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 000-10546)filed May 18, 2020.onSeptember 1, 2023.
3.2
3.2
Amended and Restated By-lawsBy-Laws of the Company effective as of May 5, 2022, incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K (File No. 000-10546) filed May 18, 2020.5, 2022.
4.1**
4.1**
Description of common stock incorporated herein by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-K (File No. 000-10546) filed February 24, 2022.
10.1*
10.1Credit Agreement dated October 11, 2019, among the Company and JP Morgan Chase Bank, N.A. as administrative agent, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form
8-K (File No. 000-10546) filed October 16, 2019.
10.2First Amendment to Credit Agreement dated August 31, 2020, between the Company and JP Morgan Chase Bank, N.A. as administrative agent, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-10546) filed September 2, 2020.
10.3*Lawson Products, Inc. Executive Deferral Plan (as Amended and Restated Effective November 1, 2015), incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q (File No. 000-10546) for the quarter ended September 30, 2021.
10.2*
10.4*
Lawson Products, Inc. Amended Stock Performance Plan (as Amended and Restated Effective January 24, 2017), incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q (File No. 000-10546) for the quarter ended September 30, 2021.
10.3*
10.5*
Amendment of the Lawson Products, Inc. Amended Stock Performance Plan (as Amended and Restated Effective January 24, 2017), dated December 23, 2020, incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K (File No. 000-10546) for the fiscal year ended December 31, 2020.
10.4*
10.6*
Form Letter regarding Stock Performance Rights, incorporated by reference to Exhibit 10(c)(16) to the Company’s Annual Report on Form 10-K (File No. 000-10546) for the fiscal year ended December 31, 2004.
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Table of Contents
10.7*
10.5*
Lawson Products,Distribution Solutions Group, Inc. 2009 Equity Compensation Plan (as Amended(amended and Restated Effective May 14, 2019)restated effective October 17, 2022, as amended November 10, 2022), incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-10546) filed May 3, 2019.November 18, 2022.
10.6*
10.8*First Amendment to the Lawson Products, Inc. 2009 Equity Compensation Plan (as Amended and Restated Effective May 14, 2019), incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form
8-K (File No. 000-10546) filed May 3, 2019.
10.9*Amendment to the Lawson Products, Inc. 2009 Equity Compensation Plan (as Amended and Restated Effective May 14, 2019), dated December 23, 2020, incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K (File No. 000-10546) for the fiscal year ended December 31, 2020.
10.10*Form of Award Agreement under the 2009 Equity Compensation Plan (now known as the Distribution Solutions Group, Inc. Equity Compensation Plan) (Target Units, SPRs and Restricted Units), incorporated by reference to Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q (File No. 000-10546) for the quarter ended September 30, 2021.
10.7*
10.11*
Form of Award Agreement under the 2009 Equity Compensation Plan (now known as the Distribution Solutions Group, Inc. Equity Compensation Plan) (MSU Target Units, ROIC Target Units and Restricted Units), incorporated by reference to Exhibit 10.12 to the Company’s Quarterly Report on Form 10-Q (File No. 000-10546) for the quarter ended September 30, 2021.
10.8*
10.12*
Form of Award Agreement under the 2009 Equity Compensation Plan (now known as the Distribution Solutions Group, Inc. Equity Compensation Plan) (MSU Target Units, ROIC Target Units and Restricted Units), incorporated by reference to Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q (File No. 000-10546) for the quarter ended September 30, 2021.
10.9*,**
Form of Option Award Agreement dated as of August 22, 2023 under the Distribution Solutions Group, Inc.Equity Compensation Plan, as amended on November 10, 2022.
95


10.10*,**
Form of Option Award Agreement dated as of January 27, 2023 under the Distribution Solutions Group, Inc. Equity Compensation Plan, as amended on November 10, 2022.
10.13*
10.11*
Lawson Products, Inc. 2021 Annual Incentive Plan Summary, incorporated by reference to Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q (File No. 000-10546) for the quarter ended September 30, 2021.
10.12*
10.14*
Form of Indemnification Agreement for Directors and Officers, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-10546) filed September 19, 2008.
10.13*
10.15*
Form of Change in Control Agreement for Officers, incorporated by reference to Exhibit 10.16 to the Company’s Quarterly Report on Form 10-Q (File No. 000-10546) for the quarter ended September 30, 2021.
10.14*
10.16*Employment Agreement dated as of August 14, 2017 by and between Lawson Products, Inc., an Illinois corporation, and Michael G. DeCata, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form
8-K (File No. 000-10546) filed August 17, 2017.
10.17*Amendment No. 1 to the Employment Agreement entered into on April 11, 2018 between Lawson Products, Inc., an Illinois corporation, and Michael G. DeCata, incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K (File No. 000-10546) filed April 11, 2018.
10.18*Employment Agreement dated as of August 29, 2012 by and between Lawson Products, Inc., an Illinois corporation, and Ron Knutson, incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (File No. 000-10546) filed September 4, 2012.
10.19*Retirement and Consulting Agreement, dated as of March 2, 2021, by and between Lawson Products, Inc., an Illinois corporation, and Neil Jenkins, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-10546) filed March 5, 2021.
10.20Voting Agreement, dated as of December 29, 2021, by and among the Company and Luther King Capital Management Corporation, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-10546) filed March 5, 2021.
10.15
Voting Agreement, dated as of December 29, 2021, by and among Lawson Products, Inc. and Luther King Capital Management Corporation, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-10546) filed January 4, 2022.
10.16†
10.21**
Amended and Restated Commitment Letter,Credit Agreement, dated February as of April 1, 2022, by and among Lawson Products, Inc., the subsidiaries of Lawson Products, Inc. party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 000-10546) filed April 4, 2022.
10.17
Registration Rights Agreement, dated as of April 1, 2022, by and among Lawson Products, Inc., 301 HW Opus Investors, LLC and LKCM TE Investors, LLC, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-10546) filed April 4, 2022.
10.18*
Retirement and Consulting Agreement, dated as of April 4, 2022, by and between Lawson Products, Inc., an Illinois corporation, and Michael G. DeCata, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-10546) filed April 8, 2022.
10.19*
Employment Agreement, dated as of April 4, 2022, by and between Lawson Products, Inc., an Illinois corporation, and Cesar A. Lanuza, incorporated by reference to Exhibit 10.22 to the Company’s Quarterly Report on Form 10-Q (File No. 000-10546) for the quarter ended June 30, 2022.
10.20*
Employment Agreement, dated as of January 27, 2023, by and between Lawson Products, Inc., an Illinois corporation, and Ronald J. Knutson, incorporate by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-10546) filed January 31, 2023.
10.21
Subscription Agent Agreement, dated as of May 8, 2023, by and among Distribution Solutions Group, Inc., Computershare Inc. and Computershare Trust Company, N.A., incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-10546) filed May 9, 2023.
10.22†
Amended and Restated Credit Agreement, dated as of June 8, 2023, by and among Distribution Solutions Group, Inc., the subsidiaries of Distribution Solutions Group, Inc. party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent, incorporated herein by reference to Exhibit 10.21 to the Company’s AnnualCurrent Report on Form 10-K8-K (File No. 000-10546) filed February 24, 2022.June 9, 2023.
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Table of Contents
21**
Subsidiaries of the Company, incorporated herein by reference to Exhibit 21 to the Company’s Annual Report on Form 10-KCompany. (File No. 000-10546) filed February 24, 2022.
23.1**
Consent of Grant Thornton, LLP.
23*
23.2**
Consent of BDO USA, LLP, incorporated herein by reference to Exhibit 23 to the Company’s Annual Report on Form 10-KP.C. (File No. 000-10546) filed February 24, 2022.
31.1**
31.1**Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated February 24, 2022, incorporated herein by reference to Exhibit 31.1 to the Company’s Annual Report on Form
10-K (File No. 000-10546) filed February 24, 2022.
31.2**Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated February 24, 2022, incorporated herein by reference to Exhibit 31.1 to the Company’s Annual Report on Form 10-K (File No. 000-10546) filed February 24, 2022.
31.3****Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2**
31.4****
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32***
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, incorporated herein by reference to Exhibit 32 to the Company’s Annual Report on Form 10-K2002. (File No. 000-10546) filed February 24, 2022.
97**
Distribution Solutions Group, Inc. Incentive Based Compensation Recoupment Policy, dated as of November 28, 2023.
101.INSInline XBRL Instance Document incorporated herein by reference to Exhibit 101.INS to– the Company’s Annual Report on Form
10-K
(instance document does not appear in the Interactive Data File
No. 000-10546)
filed February 24, 2022 because its XBRL tags are embedded within the Inline XBRL document
101.SCH**
101.SCH**Inline XBRL Taxonomy Extension Schema Document incorporated herein by reference to Exhibit 101.SCH to the Company’s Annual Report on Form
10-K
(File
No. 000-10546)
filed February 24, 2022.
101.CAL**
101.CAL**Inline XBRL Taxonomy Extension Calculation Linkbase Document incorporated herein by reference to Exhibit 101.CAL to the Company’s Annual Report on Form
10-K
(File
No. 000-10546)
filed February 24, 2022.
101.DEF**
101.DEF**Inline XBRL Taxonomy Extension Definition Linkbase Document incorporated herein by reference to Exhibit 101.DEF to the Company’s Annual Report on Form
10-K
(File
No. 000-10546)
filed February 24, 2022.
101.LAB**
101.LAB**Inline XBRL Taxonomy Extension Label Linkbase Document incorporated herein by reference to Exhibit 101.LAB to the Company’s Annual Report on Form
10-K
(File
No. 000-10546)
filed February 24, 2022.
101.PRE**
101.PRE**Inline XBRL Taxonomy Extension Presentation Linkbase Document incorporated herein by reference to Exhibit 101.PRE to the Company’s Annual Report on Form
10-K
(File
No. 000-10546)
filed February 24, 2022.
104
104Cover Page Interactive File (embedded within the Inline XBRL Document)document and contained in Exhibit 101)
96


† Certain schedules and/or similar attachments omitted pursuant to Item 601(a)(5) of Regulation S-K promulgated by the U.S. Securities and Exchange Commission. The Company agrees to furnish supplementally a copy of any omitted schedule or similar attachment to the SEC upon request.
* Indicates management employment contracts or compensatory plans or arrangements.
**Filed herewith.
***Furnished herewith.

ITEM 16. FORM 10-K SUMMARY.

†
Certain schedules and exhibits omitted pursuant to Item 601(b)(2) of Regulation
S-K
promulgated by the U.S. Securities and Exchange Commission. The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request.
*
Indicates management employment contracts or compensatory plans or arrangements.
**
Previously filed with the Original Form
10-K.
***
Previously furnished with the Original Form
10-K.
****
Filed herewith.
None.
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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DISTRIBUTION SOLUTIONS GROUP, INC.
LAWSON PRODUCTS, INC.
(Registrant)
Dated:March 7, 2024/s/ J. Bryan King
By:/s/ Michael G. DeCata
Michael G. DeCata
J. Bryan King
Chairman, President and Chief Executive Officer and Director

(principal executive officer)
Dated:March 7, 2024Date: April 29, 2022
By:/s/ Ronald J. Knutson
Ronald J. Knutson

Executive Vice President, Chief Financial Officer and Treasurer

(principal financial officer)
Dated:March 7, 2024Date: April 29, 2022
By:/s/ David S. Lambert
David S. Lambert

Vice President, Controller and Chief Accounting Officer

(principal accounting officer)

98


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
SignatureTitleDate

/s/ J. Bryan King		Chairman, President and Chief Executive Officer
(principal executive officer)		March 7, 2024
J. Bryan King

/s/ Ronald J. Knutson		Date: April 29, 2022Executive Vice President, Chief Financial Officer and Treasurer
(principal financial officer)		March 7, 2024
Ronald J. Knutson

/s/ David S. Lambert		Vice President, Controller and Chief Accounting Officer
(principal accounting officer)		March 7, 2024
David S. Lambert

/s/ Andrew B. Albert
Director		March 7, 2024
Andrew B. Albert

/s/ I. Steven Edelson
Director		March 7, 2024
I. Steven Edelson

/s/ Lee S. Hillman
Director		March 7, 2024
Lee S. Hillman

/s/ Mark F. Moon
Director		March 7, 2024
Mark F. Moon

/s/ Bianca A. Rhodes
Director		March 7, 2024
Bianca A. Rhodes

/s/ Bradley Wallace
Director		March 7, 2024
Bradley Wallace

/s/ Robert S. Zamarripa
Director		March 7, 2024
Robert S. Zamarripa

99