Distribution Solutions Group, Inc.: Form 10-Q for the period ended Mar 31, 2026
Filed with the SEC on Apr 30, 2026 and accepted by EDGAR at Apr 30, 2026, 07:43 ET.
Management's discussion and analysis
As filed, 40,862 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
The following discussion and analysis of DSG’s financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements, accompanying notes and other information included in DSG’s Annual Report on Form 10-K filed for the year ended December 31, 2025.
References to “DSG”, the “Company”, “we”, “our” or “us” refer to Distribution Solutions Group, Inc. and all entities consolidated in the accompanying unaudited condensed 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.
We manage and report our operating results through four reportable segments: Lawson, TestEquity, Gexpro Services and Canada Branch Division. A summary of our reportable segments is presented below. For additional details about our segments see Note 1 – Nature of Operations and Basis of Presentation and Note 13 – Segment Information, within Item 1. Financial Statements.
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 and an inside sales channel throughout the United States and Canada.
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.
Canada Branch Division is a distributor of industrial MRO supplies, safety products, fasteners, power tools and related value-add services to the Canadian MRO market through the sale of products and services via warehouse shipments and to its walk-up customers through 35 branch locations.
In addition to these four 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.
Recent Events
Eastern Valve Acquisition
On March 9, 2026, DSG completed the acquisition of Eastern Valve & Control Specialties Ltd. (“Eastern Valve” and the “Eastern Valve Transaction”). Eastern Valve is located in Paradise, Newfoundland, Canada, and supplies and services industrial valve products throughout Atlantic Canada. Eastern Valve was acquired to expand DSG’s operating footprint in the Canadian market.
Organic Growth Strategy
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 digital capabilities across our platform.
Acquisition Strategy
In addition to organic growth, we plan to actively pursue acquisition opportunities complementary to our businesses and that we believe will be financially accretive to our organization.
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 52.6 in the three months ended March 31, 2026, compared to 50.1 in the three months ended March 31, 2025.
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 utilizes an inside sales team to help drive field sales representative productivity and also utilizes an e-commerce site to generate sales.
TestEquity Sales Drivers
The North American market for test and measurement, industrial, and electronic production supplies is highly fragmented, with competition ranging from global to regional distributors. We believe TestEquity stands out through its portfolio of specialized brands, technical knowledge, and digital platforms, each tailored to serve specific needs across the electronics lifecycle. These brands maintain unique identities and address every stage of the electronics process—from R&D to assembly and ongoing maintenance. This multi-brand approach enables TestEquity to offer an extensive product range, expert support, and tailored technical solutions, positioning it as a trusted partner across diverse customer requirements.
Revenue growth is fueled by TestEquity’s comprehensive catalog of test and measurement equipment, electronic production supplies, and industrial tools, supported by a high-touch, consultative sales model. Strategic acquisitions have expanded its customer base and strengthened recurring rental revenue. We believe that continued investments in e-commerce, rising demand from high-growth sectors like aerospace and telecommunications, and TestEquity’s strong positioning as a preferred vendor amid supplier consolidation will contribute to sustained momentum and long-term value creation.
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 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.
Canada Branch Division Sales Drivers
Canada Branch Division is a distributor of industrial MRO supplies, safety products, fasteners, power tools and related value-add services to the Canadian MRO market through the sale of products and services via warehouse shipments and to its walk-up customers through 35 branch locations.
Canada Branch Division’s strategy is to grow revenue through increasing wallet share with existing customers, via introduction of new product lines and services in geographic areas that were underserviced previously. Additionally, Canada Branch Division will engage new customers and additional ship-to locations with its national sales team.
Supply Chain Disruptions and Tariffs
We continue to be affected by rising supplier costs caused by inflation, and increased tariffs, transportation and labor costs. We have instituted various price increases during 2025 and 2026 in response to rising supplier costs and increased tariffs, transportation and labor costs in order to attempt to manage our gross profit margins.
Factors Affecting Comparability to Prior Periods
Our results of operations are not directly comparable on a year-over-year basis due to acquisition activity. We account for acquisitions under Accounting Standards Codification 805, Business Combinations (“ASC 805”). Accordingly, the results of acquisitions are only included subsequent to their respective acquisition dates. Refer to Note 3 – Business Acquisitions within Item 1. Financial Statements for a description of the acquisition completed in 2026 and the reportable segment in which the acquisition’s results of operations are included.
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 comparability from period to period. We define Adjusted EBITDA as operating income plus depreciation and amortization, stock-based compensation, severance and acquisition related retention costs, costs related to the execution and integration of acquisitions, amortization of fair value step-up resulting from acquisitions and other non-recurring items. Management uses operating income and Adjusted EBITDA to evaluate the performance of its reportable segments. See Note 13 – Segment Information within Item 1. Financial Statements for additional information about our reportable segments.
The following table provides a reconciliation of Net income (loss) to Adjusted EBITDA on a consolidated basis and Operating income (loss) to Adjusted EBITDA by segment for the three months ended March 31, 2026 and 2025. A reconciliation of Net income (loss) to Adjusted EBITDA by segment is not provided because management does not determine or review net income at the segment level and does not allocate non-operating costs and expenses to its segments, such as income taxes, interest expense, and various other non-operating income and expense.
Reconciliation of Net Income (Loss) to Non-GAAP Adjusted EBITDA (Unaudited)
(in thousands)
| Three Months Ended March 31, 2026 Lawson | TestEquity | Gexpro Services | Canada Branch Division | All Other | Consolidated | |
|---|---|---|---|---|---|---|
| Net income (loss) | $382 | |||||
| Income tax expense (benefit) | 375 | |||||
| Other income (expense), net | 702 | |||||
| Interest expense | 12,171 | |||||
| Operating income (loss) | $3,056 | $4,047 | $8,401 | $386 | $(2,260) | $13,630 |
| Depreciation and amortization | 6,714 | 8,280 | 3,129 | 1,601 | — | 19,724 |
| Stock-based compensation(1) | 938 | 688 | 365 | — | 433 | 2,424 |
| Severance and acquisition related retention expenses(2) | 745 | 181 | 96 | 119 | — | 1,141 |
| Acquisition related costs(3) | 24 | 50 | 36 | 643 | — | 753 |
| Inventory step-up(4) | — | — | — | 24 | — | 24 |
| Other non-recurring(5) | 92 | — | — | 45 | — | 137 |
| Adjusted EBITDA | $11,569 | $13,246 | $12,027 | $2,818 | $(1,827) | $37,833 |
(in thousands)
| Three Months Ended March 31, 2025 Lawson | TestEquity | Gexpro Services | Canada Branch Division | All Other | Consolidated | |
|---|---|---|---|---|---|---|
| Net income (loss) | $3,261 | |||||
| Income tax expense (benefit) | 2,253 | |||||
| Other income (expense), net | (632) | |||||
| Change in fair value of earnout liabilities | 1,000 | |||||
| Interest expense | 14,215 | |||||
| Operating income (loss) | $6,316 | $4,130 | $11,241 | $651 | $(2,241) | $20,097 |
| Depreciation and amortization | 6,552 | 8,128 | 3,453 | 1,846 | — | 19,979 |
| Stock-based compensation(1) | 523 | 168 | — | — | 283 | 974 |
| Severance and acquisition related retention expenses(2) | 814 | 678 | 16 | 119 | 1 | 1,628 |
| Acquisition related costs(3) | 102 | (293) | 265 | — | 34 | 108 |
| Inventory step-up(4) | — | — | — | — | — | — |
| Other non-recurring(5) | — | — | — | — | — | — |
| Adjusted EBITDA | $14,307 | $12,811 | $14,975 | $2,616 | $(1,923) | $42,786 |
(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 not related to a formal restructuring plan and acquisition related retention expenses.
(3) Transaction and integration costs related to acquisitions.
(4) Inventory fair value step-up adjustment for acquisition accounting related to acquisitions completed.
(5) Other non-recurring costs consist of certain non-recurring strategic projects and other non-recurring items.
Intersegment Transactions
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 unaudited condensed consolidated financial statements are provided in Note 13 – Segment Information within Item 1. Financial Statements.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025
Consolidated Results of Operations
(Dollars in thousands)
| Revenue | Three Months Ended March 31, 2026 Amount | % of Revenue | 2025 Amount | % of Revenue |
|---|---|---|---|---|
| Lawson | $123,736 | 24.9% | $120,462 | 25.2% |
| TestEquity | 204,176 | 41.2% | 188,773 | 39.5% |
| Gexpro Services | 117,648 | 23.7% | 118,905 | 24.9% |
| Canada Branch Division | 51,022 | 10.3% | 50,543 | 10.6% |
| Intersegment revenue elimination | (587) | (0.1)% | (654) | (0.2)% |
| Total Revenue | 495,995 | 100.0% | 478,029 | 100.0% |
| Cost of goods sold | ||||
| Lawson | 58,749 | 11.8% | 52,228 | 10.9% |
| TestEquity | 158,582 | 32.0% | 147,016 | 30.8% |
| Gexpro Services | 81,891 | 16.5% | 81,799 | 17.1% |
| Canada Branch Division | 33,812 | 6.8% | 33,646 | 7.0% |
| Intersegment cost of goods sold elimination | (378) | —% | (640) | (0.1)% |
| Total Cost of goods sold | 332,656 | 67.1% | 314,049 | 65.7% |
| Gross profit | 163,339 | 32.9% | 163,980 | 34.3% |
| Selling, general and administrative expenses | ||||
| Lawson | 61,931 | 12.5% | 61,918 | 13.0% |
| TestEquity | 41,547 | 8.4% | 37,627 | 7.9% |
| Gexpro Services | 27,356 | 5.5% | 25,865 | 5.4% |
| Canada Branch Division | 16,824 | 3.4% | 16,246 | 3.4% |
| All Other | 2,051 | 0.4% | 2,227 | 0.4% |
| Total Selling, general and administrative expenses | 149,709 | 30.2% | 143,883 | 30.1% |
| Operating income (loss) | 13,630 | 2.7% | 20,097 | 4.2% |
| Interest expense | (12,171) | (2.5)% | (14,215) | (3.0)% |
| Change in fair value of earnout liabilities | — | —% | (1,000) | (0.2)% |
| Other income (expense), net | (702) | —% | 632 | 0.2% |
| Income (loss) before income taxes | 757 | 0.2% | 5,514 | 1.2% |
| Income tax expense (benefit) | 375 | 0.1% | 2,253 | 0.5% |
| Net income (loss) | $382 | 0.1% | $3,261 | 0.7% |
Overview of Consolidated Results of Operations
Our consolidated revenue increased $18.0 million in the first quarter of 2026 compared to the first quarter of 2025 primarily driven by an increase in organic revenue of $17.2 million or 3.6%. Consolidated gross profit decreased and Selling, general and administrative expenses increased in the first quarter of 2026 compared to the prior year quarter, primarily to support the increase in revenue.
Refer to Results by Reportable Segment below for a complete discussion of our results of operations.
Results by Reportable Segment
Lawson Segment
(Dollars in thousands)
| Three Months Ended March 31, 2026 | 2025 | Change Amount% | ||
|---|---|---|---|---|
| Revenue from external customers | $123,689 | $120,440 | $3,249 | 2.7% |
| Intersegment revenue | 47 | 22 | 25 | N/M |
| Revenue | 123,736 | 120,462 | 3,274 | 2.7% |
| Cost of goods sold | 58,749 | 52,228 | 6,521 | 12.5% |
| Gross profit | 64,987 | 68,234 | (3,247) | (4.8)% |
| Selling, general and administrative expenses | 61,931 | 61,918 | 13 | —% |
| Operating income (loss) | $3,056 | $6,316 | $(3,260) | (51.6)% |
| Gross profit margin | 52.5% | 56.6% | ||
| Adjusted EBITDA(1) | $11,569 | $14,307 | $(2,738) | (19.1)% |
(1) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of Adjusted EBITDA to operating income.
N/M Not meaningful
Revenue and Gross Profit
Revenue increased approximately $3.3 million, or 2.7%, to $123.7 million in the first quarter of 2026 compared to $120.5 million in the first quarter of 2025. The increase was primarily driven by increased sales to Lawson’s strategic and government customers, partially offset by a decline in sales to Lawson’s core customers.
Gross profit decreased $3.2 million, or 4.8%, to $65.0 million in the first quarter of 2026 compared to gross profit of $68.2 million in the prior year quarter primarily as a result of a sales mix shift toward lower margin customers, increased vendor costs and higher tariff rates on inbound freight partially offset by customer price increases. Lawson gross profit as a percentage of revenue was 52.5% in the first quarter of 2026 compared to 56.6% in the prior year quarter. The gross profit margin percentage decrease was primarily due to a sales mix shift toward lower margin customers, increased vendor costs and higher tariff rates on inbound freight partially offset by customer price increases.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of compensation and support for Lawson sales representatives and expenses to operate Lawson’s distribution network and overhead expenses.
Selling, general and administrative expenses remained flat at $61.9 million in the first quarter of 2026 compared to the prior year quarter.
Adjusted EBITDA
During the three months ended March 31, 2026, Lawson generated Adjusted EBITDA of $11.6 million, or 9.3% of sales. This is a decrease of $2.7 million from the same period a year ago primarily driven by the lower gross profit margin percentage partially offset by increased revenue.
TestEquity Segment
(Dollars in thousands)
| Three Months Ended March 31, 2026 | 2025 | Change Amount% | ||
|---|---|---|---|---|
| Revenue from external customers | $203,764 | $188,456 | $15,308 | 8.1% |
| Intersegment revenue | 412 | 317 | 95 | 30.0% |
| Revenue | 204,176 | 188,773 | 15,403 | 8.2% |
| Cost of goods sold | 158,582 | 147,016 | 11,566 | 7.9% |
| Gross profit | 45,594 | 41,757 | 3,837 | 9.2% |
| Selling, general and administrative expenses | 41,547 | 37,627 | 3,920 | 10.4% |
| Operating income (loss) | $4,047 | $4,130 | $(83) | (2.0)% |
| Gross profit margin | 22.3% | 22.1% | ||
| Adjusted EBITDA(1) | $13,246 | $12,811 | $435 | 3.4% |
(1) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of Adjusted EBITDA to operating income.
Revenue and Gross Profit
Revenue increased $15.4 million, or 8.2%, to $204.2 million in the first quarter of 2026 compared to $188.8 million in the first quarter of 2025. The increase was primarily driven by a $19.0 million increase in revenue from test and measurement, rentals, chambers, refurbished, direct and indirect electronics production supplies partially offset by a $3.6 million decrease in revenue from fabrication and value added services along with a decrease in revenue from the Europe region.
Gross profit increased $3.8 million to $45.6 million in the first quarter of 2026 compared to gross profit of $41.8 million in the prior year quarter. The increase was primarily driven by higher sales. TestEquity gross profit as a percentage of revenue increased to 22.3% in the first quarter of 2026 compared to 22.1% in the prior year quarter primarily due to lower inventory write-offs.
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 $3.9 million to $41.5 million in the first quarter of 2026 compared to $37.6 million in the prior year quarter. The increase was primarily driven by an increase in stock-based compensation of $0.5 million, higher acquisition expenses of $0.3 million, higher salaries, commissions and bonuses as part of strategic leadership investments in 2026 and higher incentive compensation with the increase in revenue. These were partially offset by lower severance and acquisition related retention expenses of $0.5 million.
Adjusted EBITDA
During the three months ended March 31, 2026, TestEquity generated Adjusted EBITDA of $13.2 million or 6.5% of sales. This is an increase of $0.4 million from the same period a year ago, which was primarily driven by the increase in revenue and gross profit margin while leveraging Selling, general, and administrative expenses over a higher sales base.
Gexpro Services Segment
(Dollars in thousands)
| Three Months Ended March 31, 2026 | 2025 | Change Amount% | ||
|---|---|---|---|---|
| Revenue from external customers | $117,543 | $118,593 | $(1,050) | (0.9)% |
| Intersegment revenue | 105 | 312 | (207) | (66.3)% |
| Revenue | 117,648 | 118,905 | (1,257) | (1.1)% |
| Cost of goods sold | 81,891 | 81,799 | 92 | 0.1% |
| Gross profit | 35,757 | 37,106 | (1,349) | (3.6)% |
| Selling, general and administrative expenses | 27,356 | 25,865 | 1,491 | 5.8% |
| Operating income (loss) | $8,401 | $11,241 | $(2,840) | (25.3)% |
| Gross profit margin | 30.4% | 31.2% | ||
| Adjusted EBITDA(1) | $12,027 | $14,975 | $(2,948) | (19.7)% |
(1) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of Adjusted EBITDA to operating income.
Revenue and Gross Profit
Revenue decreased $1.3 million, or 1.1%, to $117.6 million in the first quarter of 2026 compared to $118.9 million in the first quarter of 2025. The decrease in revenue was primarily driven by a decline of $4.3 million and $1.5 million in the renewables and aerospace and defense vertical markets, respectively, partially offset by increases of $3.5 million in the industrial power vertical market and $1.5 million in the consumer and industrial vertical market. The changes in these vertical markets are inclusive of the pass through of tariff charges of approximately $2.8 million.
Gross profit decreased $1.3 million to $35.8 million in the first quarter of 2026 compared to gross profit of $37.1 million in the prior year quarter, primarily due to lower revenue. Gexpro Services gross profit as a percentage of revenue decreased to 30.4% in the first quarter of 2026 compared to 31.2% in the prior year quarter primarily as a result of the pass through of tariff charges of approximately $2.8 million which negatively impacted the gross margin percentage by approximately 70 basis points.
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.
Selling, general, and administrative expenses increased $1.5 million to $27.4 million in the first quarter of 2026 compared to $25.9 million in the prior year quarter primarily driven by higher medical claim costs and stock-based compensation of $0.4 million.
Adjusted EBITDA
During the three months ended March 31, 2026, Gexpro Services generated Adjusted EBITDA of $12.0 million or 10.2% of sales. This is a decrease of $2.9 million from the same period a year ago primarily driven by lower revenue.
Canada Branch Division Segment
(Dollars in thousands)
| Three Months Ended March 31, 2026 | 2025 | Change Amount% | ||
|---|---|---|---|---|
| Revenue from external customers | $50,999 | $50,540 | $459 | 0.9% |
| Intersegment revenue | 23 | 3 | 20 | N/M |
| Revenue | 51,022 | 50,543 | 479 | 0.9% |
| Cost of goods sold | 33,812 | 33,646 | 166 | 0.5% |
| Gross profit | 17,210 | 16,897 | 313 | 1.9% |
| Selling, general and administrative expenses | 16,824 | 16,246 | 578 | 3.6% |
| Operating income (loss) | $386 | $651 | $(265) | (40.7)% |
| Gross profit margin | 33.7% | 33.4% | ||
| Adjusted EBITDA(1) | $2,818 | $2,616 | $202 | 7.7% |
(1) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of Adjusted EBITDA to operating income.
N/M Not meaningful
Revenue and Gross Profit
Revenue increased $0.5 million to $51.0 million in the first quarter of 2026 compared to $50.5 million in the first quarter of 2025 primarily driven by $0.8 million of additional revenue generated by the 2026 acquisition of Eastern Valve.
Gross profit increased $0.3 million to $17.2 million in the first quarter of 2026 compared to gross profit of $16.9 million in the prior year quarter primarily from the inclusion of additional gross profit of $0.3 million from the acquisition of Eastern Valve. Gross profit as a percentage of revenue increased slightly to 33.7% in the first quarter of 2026 compared to 33.4% in the prior year quarter.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for Canada Branch Division consist of compensation, expenses to operate its distribution network and branch locations and overhead expenses.
Selling, general and administrative expenses increased $0.6 million to $16.8 million in the first quarter of 2026 compared to $16.2 million in the prior year quarter. The increase was primarily driven by approximately $0.1 million of additional expenses from Eastern Valve after its acquisition and higher acquisition related expenses of $0.6 million.
Adjusted EBITDA
During the three months ended March 31, 2026, Canada Branch Division generated Adjusted EBITDA of $2.8 million, or 5.5% of sales. This is an increase of $0.2 million from the same period a year ago, primarily driven by approximately $0.1 million of adjusted EBITDA generated by the 2026 acquisition of Eastern Valve.
Consolidated Non-operating Income and Expense
(Dollars in thousands)
| Three Months Ended March 31, 2026 | 2025 | Change Amount% | ||
|---|---|---|---|---|
| Interest expense | $(12,171) | $(14,215) | $2,044 | (14.4)% |
| Change in fair value of earnout liabilities | $— | $(1,000) | $1,000 | (100.0)% |
| Other income (expense), net | $(702) | $632 | $(1,334) | N/M |
| Income tax expense (benefit) | $375 | $2,253 | $(1,878) | (83.4)% |
N/M Not meaningful
Interest Expense
Interest expense decreased $2.0 million in the first quarter of 2026 compared to the prior year quarter primarily due to lower average outstanding borrowings and lower average interest rates in 2026.
Change in Fair Value of Earnout Liabilities
The $1.0 million expense in the first quarter of 2025 related to the change in fair value of the earnout liabilities associated with the Frontier acquisition.
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 $1.3 million change in the first quarter of 2026 compared to the same period of 2025 is primarily due to a decrease in the gain on the sale of property, plant and equipment and unfavorable changes in foreign currency exchange rates.
Income Tax Expense (Benefit)
Income tax expense was $0.4 million, a 49.5% effective tax rate for the three months ended March 31, 2026 compared to an income tax expense of $2.3 million and a 40.9% effective tax rate for the three months ended March 31, 2025. The change in the year-over-year effective tax rate was primarily due to a change in valuation allowances related to interest expense limitation on deferred tax assets, state taxes and foreign income. The income tax expense recorded in the first quarter of 2026 is based on the estimated year-end effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $52.7 million on March 31, 2026 compared to $61.8 million on December 31, 2025.
The Company believes its current balances of cash and cash equivalents, availability under its Amended Credit Agreement and cash flows from operations will be sufficient to meet its liquidity needs for the next twelve months. As of March 31, 2026, the Company had $52.7 million of cash and cash equivalents and $350.2 million of borrowing availability remaining, net of outstanding letters of credit, under the Amended Credit Agreement.
Our primary short-term and long-term liquidity and capital resource needs are to finance operating expenses, working capital, capital expenditures, potential business acquisitions, strategic initiatives and general corporate purposes. Our current debt obligations under the Amended Credit Agreement mature in December 2030. Required principal payments on the Amended Credit Agreement for the next twelve months are $35.0 million. Refer to Note 8 – Debt within Item 1. Financial Statements for additional information related to our debt obligations. Access to debt capital markets has historically provided the Company with sources of liquidity, beyond normal operating cash flows. We do not currently anticipate having difficulty in obtaining financing from those markets in the future, however, we cannot provide assurance that unforeseen events or events beyond our control (such as a potential tightening of debt capital markets, including in response to the implementation of new tariffs as part of the U.S. trade policy and any reciprocal or retaliatory tariffs thereto) will not have a material adverse impact on our liquidity.
Sources and Uses of Cash
The following table presents a summary of our cash flows:
(in thousands)
| Three Months Ended March 31, 2026 | 2025 | Change | |
|---|---|---|---|
| Net cash provided by (used in) operating activities | $(20,359) | $(4,762) | $(15,597) |
| Net cash provided by (used in) investing activities | $(21,824) | $(5,053) | $(16,771) |
| Net cash provided by (used in) financing activities | $32,046 | $7,633 | $24,413 |
35
Cash Provided by (Used in) Operating Activities
Net cash used in operating activities for the three months ended March 31, 2026 was $20.4 million primarily due to net income including non-cash items, partially offset by investments in trade working capital and other net cash flow items.
Net cash used in operating activities for the three months ended March 31, 2025 was $4.8 million, primarily due to net income including non-cash items offset by investments in trade working capital and other net cash flow items.
Cash Provided by (Used in) Investing Activities
Net used in investing activities for the three months ended March 31, 2026 was $21.8 million, primarily due to the purchase of Eastern Valve, as well as purchases of property, plant and equipment and rental equipment, partially offset by the sale of property, plant and equipment and rental equipment.
Net cash used in investing activities for the three months ended March 31, 2025 was $5.1 million, primarily due to purchases of property, plant and equipment and rental equipment which was partially offset by the sale of property, plant and equipment and rental equipment.
Cash Provided by (Used in) Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2026 was $32.0 million primarily due to net borrowings on the revolving credit facility partially offset by principal payments on the term loans.
Net cash provided by financing activities for the three months ended March 31, 2025 was $7.6 million primarily due to net borrowings on the revolving credit facility partially offset by principal payments on the term loans and share repurchases.
Financing and Capital Requirements
Credit Facility
The Amended Credit Agreement includes $700 million of term debt and a revolving credit arrangement of $400 million and permits the Company to increase the commitments under the credit facility from time to time by up to $500 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 8 – Debt within Item 1. Financial Statements for a description of the Amended Credit Agreement.
On March 31, 2026, we had $736.6 million in outstanding borrowings under the Amended Credit Agreement and $350.2 million of borrowing availability remaining, net of outstanding letters of credit, under the senior secured revolving credit facility component.
As of March 31, 2026, we were in compliance with all financial covenants under our Amended Credit Agreement. While we were in compliance with our financial covenants as of March 31, 2026, failure to meet the covenant requirements of the 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 March 31, 2026, we had contractual commitments to purchase approximately $277.8 million of products from our suppliers and contractors over the next twelve months.
Capital Expenditures
During the three months ended March 31, 2026, total net capital expenditures for property, plant and equipment and rental equipment were $5.6 million including proceeds from the sale of property, plant and equipment and rental equipment. The Company expects to spend approximately $25.0 million to $30.0 million for net capital expenditures during the full fiscal 2026 year to support ongoing operations.
Stock Repurchase Program
The Company’s Board of Directors previously authorized a stock repurchase program that permits the Company to repurchase DSG 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.
During the three months ended March 31, 2026, no repurchases were made. During the three months ended March 31, 2025, the Company repurchased 320,638 shares of DSG common stock under the repurchase program at an average cost of $34.94 per share for a total cost of $11.2 million. The remaining availability for stock repurchases under the program was $32.9 million as of March 31, 2026. See Note 10 – Stockholders’ Equity within Item 1. Financial Statements for further information.
Critical Accounting Policies and Use of Estimates
The unaudited condensed consolidated financial statements were prepared in accordance with GAAP. A discussion of our critical accounting policies and estimates is contained within Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in DSG’s Annual Report on Form 10-K for the year ended December 31, 2025. There have been no significant changes to our previously disclosed critical accounting policies and use of estimates. 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;
- 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.
Market risk
As filed, 1,802 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relate primarily to our floating rate long-term debt obligations. Interest rate risk is the exposure to loss resulting from changes in the level of interest rates and the spread between different interest rates. These risks are highly sensitive to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control.
The loans under the 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 Amended Credit Agreement), plus, in each case, an additional margin ranging from 0.00% 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 Amended Credit Agreement or (ii) the Adjusted Term SOFR Rate or the Adjusted Daily Simple SOFR (each as defined in the Amended Credit Agreement), plus, in each case, an additional margin ranging from 1.00% 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 Amended Credit Agreement. Refer to Note 8 – Debt within Item 1. Financial Statements for information about the Amended Credit Agreement.
As of March 31, 2026, 100% of our debt was floating rate debt. A hypothetical increase/decrease in interest rates of 100 basis points would increase/decrease our annual interest expense by approximately $7.4 million. We have not entered into, and currently do not intend to enter into, interest rate swaps or other derivative financial instruments to mitigate the impact of fluctuations in interest rates.
Controls and procedures
As filed, 1,477 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
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 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 the Evaluation Date.
Changes in Internal Control over Financial Reporting
Given the timing of the Eastern Valve Transaction and the complexity of systems and business processes, we intend to exclude Eastern Valve from our assessment and report on internal control over financial reporting for the year ending December 31, 2026. Other than the Eastern Valve Transaction, there were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, during the quarter ended March 31, 2026 that materially affected or are reasonably likely to materially affect our internal control over financial reporting.
PART II
OTHER INFORMATION
ITEMS 3 and 4 of Part II are not applicable and have been omitted from this report.
Risk factors
As filed, 169 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
There have been no material changes from the risk factors disclosed in the “Risk Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2025.
Figures reported in this filing
Standardized line items from the XBRL in this filing, for the period ended 2026-03-31. Comparative periods it repeats are left out.
| Line item | Period | Value | XBRL concept |
|---|---|---|---|
| Revenue | 3 months2026-01-01 to 2026-03-31 | $496.0m | us-gaap:Revenues |
| Cost of revenue | 3 months2026-01-01 to 2026-03-31 | $332.7m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months2026-01-01 to 2026-03-31 | $163.3m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months2026-01-01 to 2026-03-31 | $149.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months2026-01-01 to 2026-03-31 | $13.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months2026-01-01 to 2026-03-31 | $12.2m | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months2026-01-01 to 2026-03-31 | $375.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months2026-01-01 to 2026-03-31 | $382.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months2026-01-01 to 2026-03-31 | $0.01 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months2026-01-01 to 2026-03-31 | $0.01 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months2026-01-01 to 2026-03-31 | 47,030,280 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months2026-01-01 to 2026-03-31 | −$20.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months2026-01-01 to 2026-03-31 | $3.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | At period end2026-03-31 | $52.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | At period end2026-03-31 | $790.9m | us-gaap:AssetsCurrent |
| Total assets | At period end2026-03-31 | $1.79bn | us-gaap:Assets |
| Current liabilities | At period end2026-03-31 | $301.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | At period end2026-03-31 | $1.14bn | us-gaap:Liabilities |
| Long-term debt | At period end2026-03-31 | $696.7m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | At period end2026-03-31 | $35.4m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | At period end2026-03-31 | $648.1m | us-gaap:StockholdersEquity |
Source: SEC EDGAR, the filing index for accession 0000703604-26-000024. Last ingested by Listed: Oct 27, 2026, 16:18 ET. Listed shows no prices and gives no investment advice.