Distribution Solutions Group, Inc.: Form 10-Q for the period ended Jun 30, 2026

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, in Part I, 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 38 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

Pending Merger

On July 15, 2026, we entered into the Merger Agreement with Parent, Intermediate and Merger Sub, each of which is affiliated with LKCM Headwater, J. Bryan King and their respective affiliates. The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into DSG, with DSG continuing as the surviving corporation and becoming an indirect wholly owned subsidiary of Parent. At the effective time of the Merger, each outstanding share of DSG common stock, other than specified excluded shares and shares subject to validly exercised appraisal rights, will be converted into the right to receive $35.00 in cash, without interest.

Completion of the Merger is subject to specified closing conditions, including receipt of specified stockholder approvals and expiration or termination of the applicable waiting period under the HSR Act, and is not subject to a financing condition. If ther Merger is completed, DSG will become privately held and DSG common stock will be delisted from Nasdaq. In connection with the execution of the Merger Agreement, we amended our existing credit agreement to permit, subject to its terms and conditions, revolving loans to be used to finance the Merger and related transactions. For additional information, see

Note 16 – Subsequent Events in Part I, Item 1, Financial Statements and our Current Report on Form 8-K filed with the SEC on July 16, 2026.

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. During the pendency of the Merger, our ability to pursue acquisitions and other strategic transactions is subject to the interim operating covenants contained in the Merger Agreement.

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 53.0 in the six months ended June 30, 2026, compared to 49.4 in the six months ended June 30, 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 38 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 in Part I, 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 in Part I, 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 and six months ended June 30, 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)

(in thousands)

30

(in thousands)

(in thousands)

(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, costs related to the proposed Merger (as described in Note 16 – Subsequent Events in Part I, Item 1. Financial Statements) 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 in Part I, Item 1. Financial Statements.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025

Consolidated Results of Operations

(Dollars in thousands)

Overview of Consolidated Results of Operations

Consolidated revenue increased $55.3 million in the second quarter of 2026 compared to the second quarter of 2025 primarily driven by an increase in organic revenue of $51.2 million or 10.2% and $4.1 million of additional revenue generated by the 2026 acquisition of Eastern Valve. Consolidated gross profit increased and Selling, general and administrative expenses increased in the second 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)

(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 $1.2 million, or 1.0%, to $125.5 million in the second quarter of 2026 compared to $124.3 million in the second 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 $4.2 million, or 6.1%, to $64.4 million in the second quarter of 2026 compared to gross profit of $68.6 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 51.3% in the second quarter of 2026 compared to 55.2% 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 increased $1.3 million to $61.9 million in the second quarter of 2026 compared to $60.6 million in the prior year quarter. The increase was primarily driven by higher severance expense of $1.3 million and higher medical claims costs.

During the three months ended June 30, 2026, Lawson generated Adjusted EBITDA of $11.9 million, or 9.5% of sales. This is a decrease of $3.8 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)

(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 increased $33.9 million, or 17.4%, to $229.0 million in the second quarter of 2026 compared to $195.0 million in the second quarter of 2025. The increase was primarily driven by a $15.0 million increase in revenue from test and measurement, a $16.8 million increase in revenue from direct and indirect electronics production supplies, and a $3.8 million increase in revenue from rentals, chambers and refurbished, along with an increase in revenue from the European region, partially offset by a $1.7 million decrease in revenue from fabrication and value added services.

Gross profit increased $8.4 million to $50.9 million in the second quarter of 2026 compared to gross profit of $42.6 million in the prior year quarter. The increase was primarily driven by the increase in revenue. TestEquity gross profit as a percentage of revenue increased to 22.2% in the second quarter of 2026 compared to 21.8% in the prior year quarter primarily due to higher supplier rebates.

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 $2.4 million to $40.2 million in the second quarter of 2026 compared to $37.8 million in the prior year quarter. The increase was primarily driven by an increase in stock-based compensation of $0.3 million, higher salaries, commissions and bonuses as part of strategic leadership investments in 2026 and higher incentive compensation driven by the increase in revenue. These were partially offset by a higher gain on the sale of rental assets of $0.5 million and lower bad debt expense of $1.0 million.

During the three months ended June 30, 2026, TestEquity generated Adjusted EBITDA of $20.0 million or 8.7% of sales. This is an increase of $6.5 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)

(1) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of Adjusted EBITDA to operating income.

Revenue increased $12.3 million, or 9.7%, to $140.1 million in the second quarter of 2026 compared to $127.8 million in the second quarter of 2025. The increase in revenue was primarily driven by increases in the industrial power, technology, transportation, and consumer industrial vertical markets of $8.0 million, $3.2 million, $1.6 million and $1.5 million, respectively, partially offset by a decline of $2.2 million in the aerospace and defense vertical market.

Gross profit increased $3.6 million to $43.5 million in the second quarter of 2026 compared to gross profit of $40.0 million in the prior year quarter, primarily due to the increase in revenue. Gexpro Services gross profit as a percentage of revenue decreased to 31.1% in the second quarter of 2026 compared to 31.3% in the prior year quarter primarily as a result of additional tariff charges passed through to customers of approximately $1.7 million which negatively impacted the gross margin percentage.

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 $2.9 million to $29.0 million in the second quarter of 2026 compared to $26.1 million in the prior year quarter primarily driven by higher medical claim costs and stock-based compensation of $0.4 million.

During the three months ended June 30, 2026, Gexpro Services generated Adjusted EBITDA of $18.3 million or 13.1% of sales, an increase of $1.2 million from the same period a year ago primarily driven by the increase in revenue.

Canada Branch Division Segment

(Dollars in thousands)

(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 increased $7.9 million to $63.7 million in the second quarter of 2026 compared to $55.9 million in the second quarter of 2025 driven by $4.1 million of additional revenue generated by the 2026 acquisition of Eastern Valve and an increase in organic revenue of $3.8 million primarily from increased sales volume in Eastern and Western Canada.

Gross profit increased $2.1 million to $21.0 million in the second quarter of 2026 compared to gross profit of $19.0 million in the prior year quarter primarily from the inclusion of additional gross profit of $1.3 million from the acquisition of Eastern Valve. Gross profit as a percentage of revenue decreased to 33.0% in the second quarter of 2026 compared to 33.9% in the prior year quarter primarily due to a sales mix shift toward lower margin customers.

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 were flat at $17.2 million in the second quarter of 2026 compared to $17.2 million in the prior year quarter. There were approximately $0.5 million of additional expenses driven by the 2026 acquisition of Eastern Valve which were offset by lower facility costs of $0.4 million.

During the three months ended June 30, 2026, Canada Branch Division generated Adjusted EBITDA of $5.7 million, or 9.0% of sales. This is an increase of $2.1 million from the same period a year ago, primarily driven by approximately $0.9 million of adjusted EBITDA generated by the 2026 acquisition of Eastern Valve.

Consolidated Non-operating Income and Expense

(Dollars in thousands)

36

Interest Expense

Interest expense decreased $1.2 million in the second quarter of 2026 compared to the prior year quarter primarily due to lower average interest rates in 2026.

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 $0.2 million change in the second quarter of 2026 compared to the same period of 2025 is primarily due to an increase in the gain on the sale of property, plant and equipment.

Income Tax Expense (Benefit)

Income tax expense was $5.9 million, a 41.0% effective tax rate for the three months ended June 30, 2026 compared to an income tax expense of $6.9 million and a 57.8% effective tax rate for the three months ended June 30, 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 change in the valuation allowances includes updated U.S. deferred tax projections, particularly related to future taxable income generated by the Company’s deferred tax liabilities. The income tax expense recorded in the second quarter of 2026 is based on the estimated year-end effective tax rate.

Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025

Consolidated Results of Operations

(Dollars in thousands)

Overview of Consolidated Results of Operations

Our consolidated revenue increased $73.3 million in the first six months of 2026 compared to the first six months of 2025 primarily driven by an increase in organic revenue of 7.0% and $4.9 million of additional revenue generated by the 2026 acquisition of Eastern Valve. Consolidated Gross profit and Selling, general and administrative expenses also increased over the prior year 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)

(1) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of Adjusted EBITDA to operating income.

Revenue increased $4.5 million, or 1.8%, to $249.2 million in the first six months of 2026 compared to revenue of $244.8 million in the same period 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 $7.4 million to $129.4 million in the first six months of 2026 compared to gross profit of $136.8 million in the same period of 2025 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 51.9% in the first six months of 2026 compared to 55.9% in the prior year period. 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 as well as expenses to operate Lawson’s distribution network and overhead expenses.

Selling, general and administrative expenses increased $1.3 million to $123.8 million in the first six months of 2026 compared to $122.5 million in the same period of 2025. The increase was primarily driven by higher severance expense of $1.2 million and higher medical claims costs.

During the six months ended June 30, 2026, Lawson generated Adjusted EBITDA of $23.5 million, a decrease of $6.5 million, or 21.8% 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)

(1) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of Adjusted EBITDA to operating income.

Revenue increased $49.4 million, or 12.9%, to $433.2 million in the first six months of 2026 compared to $383.8 million in the same period in 2025. The increase was primarily driven by a $24.7 million increase in revenue from test and measurement, a $25.0 million increase in revenue from electronic production supplies and a $4.4 million increase in revenue from rental and refurbished, partially offset by a $4.7 million decrease in revenue from value added services.

Gross profit increased $12.2 million to $96.5 million in the first six months of 2026 compared to $84.3 million in the same period of 2025. The increase was primarily driven by the increase in revenue. TestEquity gross profit as a percentage of revenue increased to 22.3% in the first six months of 2026 compared to 22.0% in the prior year primarily due to higher supplier rebates.

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 $6.3 million to $81.7 million in the first six months of 2026 compared to $75.4 million in the same period of 2025. The increase was primarily driven by an increase in stock-based compensation of $0.9 million, an increase in merger and acquisition expenses of $0.4 million, and higher salaries, commissions and bonuses as part of strategic leadership investments in 2026. These were partially offset by a higher gain on the sale of rental assets and lower bad debt expense.

During the six months ended June 30, 2026, TestEquity generated Adjusted EBITDA of $33.2 million, an increase of $6.9 million, or 26.4%, 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)

(1) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of Adjusted EBITDA to operating income.

Revenue increased $11.1 million, or 4.5%, to $257.8 million in the first six months of 2026 compared to $246.7 million in the same period of 2025. The increase in revenue was primarily driven by increased sales in the industrial power, technology, and consumer and industrial vertical markets of $11.6 million, $4.0 million, and $3.0 million, respectively, partially offset by decreased sales within the renewables and aerospace and defense vertical markets of $4.2 million and $3.6 million, respectively.

Gross profit increased $2.2 million to $79.3 million in the first six months of 2026 compared to $77.1 million in the same period of 2025 primarily due to the increase in revenue. Gexpro Services’ gross profit as a percentage of revenue decreased to 30.8% in the first six months of 2026 compared to 31.2% in the prior year period primarily as a result of additional tariff charges passed through to customers of approximately $4.6 million which negatively impacted the gross margin percentage.

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 $4.4 million to $56.4 million in the first six months of 2026 compared to $51.9 million in the same period of 2025. The increase was primarily driven by investments to support sales growth, higher stock-based compensation expense of $0.8 million and higher severance expense of $0.4 million.

During the six months ended June 30, 2026, Gexpro Services generated Adjusted EBITDA of $30.3 million, a decrease of $1.7 million, or 5.4% from the same period a year ago primarily driven by a lower gross margin percentage and an increase in selling, general, and administrative expenses.

Canada Branch Division Segment

(Dollars in thousands)

(1) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of Adjusted EBITDA to operating income.

Revenue increased $8.3 million, or 7.8%, to $114.7 million in the first six months of 2026 compared to $106.4 million in the same period of 2025 driven by $4.9 million of additional revenue generated by the 2026 acquisition of Eastern Valve and an increase in organic revenue of $3.4 million. Favorable foreign currency exchange rate changes positively impacted sales by $2.7 million.

Gross profit increased $2.4 million to $38.3 million in the first six months of 2026 compared to gross profit of $35.9 million in the same period of 2025 primarily from the inclusion of additional gross profit of $1.6 million generated by the 2026 acquisition of Eastern Valve. Gross profit as a percentage of revenue decreased to 33.3% in the first six months of 2026 compared to 33.7% in the prior year primarily due to a sales mix shift toward lower margin customers.

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 $34.0 million in the first six months of 2026 compared to $33.5 million in the prior year quarter. The increase was primarily due to approximately $0.7 million of additional expenses driven by the 2026 acquisition of Eastern Valve.

Adjusted EBITDA

During the first six months of 2026, Canada Branch Division generated Adjusted EBITDA of $8.5 million, an increase of $2.3 million from the same period a year ago with an increase of approximately $1.1 million driven by the acquisition of Eastern Valve.

Consolidated Non-operating Income and Expense

(Dollars in thousands)

N/M Not meaningful

Interest Expense

Interest expense decreased $3.3 million in the first six months of 2026 compared to the same period of 2025 primarily due to lower average interest rates in 2026.

Change in Fair Value of Earnout Liabilities

The $1.0 million in expense in the first six months 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 $1.1 million change in the first six months of 2026 compared to the same period of 2025 is primarily due to unfavorable changes in foreign currency exchange rates and lower interest income.

Income Tax Expense (Benefit)

Income tax expense was $6.3 million, a 41.4% effective tax rate for the first six months of 2026 compared to an income tax expense of $9.1 million and a 52.4% effective tax rate for the first six months of 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 change in the valuation allowances includes updated U.S. deferred tax projections, particularly related to future taxable income generated by the Company’s deferred tax liabilities. The income tax expense recorded in the second quarter of 2026 is based on the estimated year-end effective tax rate.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents were $66.9 million on June 30, 2026 compared to $61.8 million on December 31, 2025.

The Company believes its current balances of cash and cash equivalents, availability under its revolving credit facility and cash flows from operations will be sufficient to meet its liquidity needs for the next twelve months. As of June 30, 2026, the Company had $66.9 million of cash and cash equivalents and $344.7 million of borrowing availability remaining, net of outstanding letters of credit, under its revolving credit facility. However, as discussed in more detail below under “—Financing and Capital Requirements—Credit Agreement Amendment and Merger Financing,” the Merger Agreement now caps at $100.0 million the amount of revolving borrowings that may be outstanding under its revolving credit facility while the Merger is pending, subject to limited exceptions for certain contemplated acquisitions.

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 (as amended by the Credit Agreement Amendment executed on July 15, 2026) mature in December 2030. Required principal payments on the Amended Credit Agreement (as amended by the Credit Agreement Amendment executed on July 15, 2026) for the next twelve months are $35.0 million. Refer to Note 8 – Debt in Part I, 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)

43

Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities for the six months ended June 30, 2026 was $1.6 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 provided by operating activities for the six months ended June 30, 2025 was $28.5 million, primarily due to net income including non-cash items partially 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 six months ended June 30, 2026 was $29.8 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 six months ended June 30, 2025 was $12.0 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 six months ended June 30, 2026 was $28.9 million primarily due to net borrowings on the revolving credit facility partially offset by principal payments on the term loans.

Net cash used in financing activities for the six months ended June 30, 2025 was $39.1 million primarily due to principal payments on the term loans and repurchases of DSG common stock under the repurchase program, partially offset by net borrowings on the revolving credit facility.

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 in Part I, Item 1. Financial Statements for a description of the Amended Credit Agreement.

On June 30, 2026, we had $733.8 million in outstanding borrowings under the Amended Credit Agreement and $344.7 million of borrowing availability remaining, net of outstanding letters of credit, under the senior secured revolving credit facility component.

As of June 30, 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 June 30, 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.

Credit Agreement Amendment and Merger Financing

On July 15, 2026, in connection with the Merger Agreement, the Company entered into the Credit Agreement Amendment. The Credit Agreement Amendment permits, subject to its terms and conditions, revolving loans under the credit facility to be used to finance the Merger and related transactions and establishes a “certain funds” framework applicable to such borrowings. The Merger Agreement requires the Company to provide customary financing cooperation, including using commercially reasonable efforts to maintain the credit agreement financing or pursue specified alternative debt financing. The availability of financing is not a condition to the obligations of Parent, Intermediate and Merger Sub to complete the Merger.

The Credit Agreement Amendment was entered into after June 30, 2026 and therefore did not affect the Company’s outstanding borrowings or borrowing availability as of that date. Under the terms of the Merger agreement, during the period between execution of the Merger Agreement and completion of the Merger, revolving loans under the credit facility, other than borrowings to finance certain contemplated acquisitions, may not exceed $100.0 million outstanding at any time. Accordingly, although the credit facility provided $344.7 million of unused additional borrowing capacity at June 30, 2026, the Merger Agreement now caps at $100.0 million the amount of revolving borrowings that may be outstanding under the credit facility while the Merger is pending, subject to limited exceptions for certain contemplated acquisitions. For additional information, see Note 16 – Subsequent Events in Part I, Item 1, Financial Statements and our Current Report on Form 8-K filed with the SEC on July 16, 2026.

Purchase Commitments

As of June 30, 2026, we had contractual commitments to purchase approximately $284.0 million of products from our suppliers and contractors over the next twelve months.

Capital Expenditures

During the six months ended June 30, 2026, total net capital expenditures for property, plant and equipment and rental equipment were $13.3 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 six months ended June 30, 2026, no repurchases were made. During the six months ended June 30, 2025, the Company repurchased 653,213 shares of DSG common stock under the repurchase program at an average cost of $30.69 per share for a total cost of $20.0 million. The remaining availability for stock repurchases under the program was $32.9 million as of June 30, 2026. See Note 10 – Stockholders’ Equity in Part I, Item 1. Financial Statements for further information.

On July 15, 2026, the Company entered into the Merger Agreement, which generally prohibits the Company from repurchasing shares of DSG common stock during the pendency of the Merger, subject to specified exceptions. See Note 16 – Subsequent Events in Part I, Item 1 for additional 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.

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 in Part I, Item 1. Financial Statements for information about the Amended Credit Agreement.

As of June 30, 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 $7.3 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.

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 June 30, 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.

In addition to the information set forth in this Quarterly Report on Form 10-Q, stockholders should carefully consider the factors discussed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2025. Except for the risk factors set forth below, there have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025.

Risks Related to the Merger

The Merger may not be completed on the terms or timeline contemplated, or at all, and failure to complete the Merger could adversely affect our business, financial condition, results of operations and stock price.

Completion of the Merger is subject to a number of conditions, including (i) adoption of the Merger Agreement by the affirmative vote of the holders of a majority of the outstanding shares of DSG common stock entitled to vote thereon, (ii) approval of the Transactions by the affirmative vote of a majority of the votes cast by our disinterested stockholders (as such term is defined in Section 144 of the Delaware General Corporation Law) in respect of the Transactions, (iii) expiration or termination of the applicable waiting period under the HSR Act, (iv) the absence of any law or order that enjoins, restrains, makes illegal or otherwise prevents or prohibits the Merger, (v) the accuracy of the parties’ respective representations and warranties, (vi) our and the other parties’ material compliance with their respective covenants, (vii) the absence of any Material Adverse Effect (as defined in the Merger Agreement) since the date of the Merger Agreement, and (viii) other customary conditions. There can be no assurance that these conditions will be satisfied or waived, that the Merger will be completed by the Outside Date or that the Merger will be completed at all.

If the Merger is not completed, our stock price may decline to the extent that the current market price reflects an assumption that the Merger will be completed. In addition, if the Merger is not completed our business, financial condition and results of operations may be adversely affected, including as a result of the following: (i) we may experience negative reactions from the financial markets and financing sources, (ii) the manner in which our customers, suppliers and other business partners perceive us may be negative impacted, which in turn could adversely affect our ability to compete for or retain business, (iii) we may experience negative reactions from key personnel and other employees or prospective new candidates for employment, which could make it difficult to retain and motivate, or could otherwise adversely affect our relationship with, key personnel or employees or make it difficult to attract new or additional personnel or employees, and (iv) we would remain liable for significant transaction-related costs, In addition, in specified circumstances, including if we terminate the Merger Agreement to enter into a definitive agreement for a Superior Proposal or Parent terminates the Merger Agreement following an Adverse Recommendation Change, we may be required to pay Parent a termination fee of approximately $9.3 million in cash, which would adversely affect our financial condition and results of operations.

The announcement and pendency of the Merger could adversely affect our business and results of operations.

Uncertainty regarding the completion and timing of the Merger may adversely affect our ability to attract, retain and motivate employees and attract and maintain relationships with customers, suppliers and other business partners. Parties with which we do business may delay or defer decisions, seek to change existing business arrangements or consider relationships with our competitors. In addition, our management and employees may be required to devote substantial time and attention to matters relating to the Merger, which could divert attention away from our ongoing operations and other strategic priorities. We have incurred and expect to continue to incur significant legal, financial advisory and other professional fees in connection with the Merger, whether or not the Merger is completed.

The Merger Agreement restricts the conduct of our business while the Merger is pending, which may adversely affect our ability to pursue business opportunities or respond to changing circumstances.

The Merger Agreement requires us to conduct our business in the ordinary course and contains various interim operating covenants that restrict us from taking specified actions without Parent’s consent, subject to specified exceptions. These restrictions include limitations on dividends and stock repurchases, issuances of securities, acquisitions and dispositions, indebtedness, capital expenditures, employee compensation and benefits, material contracts and other matters. In addition, under the terms of the Merger Agreement, revolving loans under our credit facility, other than borrowings to finance certain contemplated acquisitions, may not exceed $100.0 million outstanding at any time between the signing of the Merger Agreement and the closing of the Merger. These restrictions may prevent or delay us from pursuing financing, acquisition, investment, operational or other opportunities that may arise or from responding to changing business or market conditions, even if we believe such actions would be beneficial.

The Merger Agreement, the Voting and Support Agreement and LKCM Headwater’s controlling ownership may discourage competing acquisition proposals.

The Merger Agreement contains “no-shop” restrictions that, subject to various fiduciary-out provisions, limit our ability to solicit alternative acquisition proposals or provide certain information to or engage in discussions or negotiations with third parties with respect to alternative acquisition proposals or inquiries that would reasonably be expected to lead to alternative acquisition proposals. It also provides Parent with notice and matching rights and requires us to pay a termination fee of approximately $9.3 million in specified circumstances. In addition, LKCM and the Company have entered into a Voting and Support Agreement pursuant to which LKCM has agreed, among other things, and subject to the terms and conditions set forth in that agreement, to vote or cause to be voted all shares of DSG common stock beneficially owned by it and its controlled affiliates in favor of the Merger Agreement and against alternative acquisition proposals. LKCM Headwater and its affiliates beneficially owned, in the aggregate, approximately 78.6% of our outstanding common stock as of June 30, 2026. These provisions and circumstances could discourage a third party from making an alternative acquisition proposal or could affect the terms of any such proposal. Although completion of the Merger requires approval by the affirmative vote of a majority of the votes cast by our disinterested stockholders, LKCM Headwater’s ownership position may limit the practical availability of certain alternative transactions.

The financing contemplated for the Merger may not be available when required, which could delay or prevent completion of the Merger.

Although Parent’s obligation to complete the Merger is not subject to a financing condition, the contemplated financing is subject to conditions. The lenders’ obligations to provide the credit agreement financing are subject to the conditions set forth in the Credit Agreement Amendment. In addition, although LKCM Headwater Investment IV, L.P. (an affiliate of LKCM Headwater) entered into an equity commitment letter with Parent, Intermediate and Merger Sub pursuant to which LKCM Headwater Investment IV, L.P. has committed to make or cause to be made an equity investment of up to $125 million in Parent to fund a portion of the amounts payable in connection with the Merger, the obligation of LKCM Headwater IV, L.P. to fund the commitment is subject to the conditions set forth in the equity commitment letter, including the satisfaction or waiver of the conditions to Parent’s, Intermediate’s and Merger Sub’s obligations to complete the Merger, the substantially concurrent completion of the Merger and the funding of the debt financing for the Merger under the Credit Agreement Amendment or alternative debt financing. If the contemplated financing is unavailable or insufficient, Parent may be unable to complete the Merger when required, and we may be required to pursue contractual remedies, which may involve delay, expense and litigation and may not result in timely completion of the Merger. If the Merger is completed and borrowings under the amended credit facility are used to finance the Merger, the surviving corporation’s indebtedness and interest expense will increase.

Litigation relating to the Merger could delay or prevent completion of the Merger and result in substantial costs.

Transactions such as the Merger frequently result in litigation or demands from stockholders. Lawsuits may be filed against us, our Board of Directors, the Special Committee, our officers, Parent, LKCM Headwater or other parties in connection with the proposed Merger alleging, among other things, breaches of fiduciary duties or disclosure deficiencies. Any such litigation could seek to enjoin or delay the Merger, require supplemental disclosures, result in monetary liability or settlement payments and cause us to incur substantial defense and indemnification costs. Even if claims are without merit, defending them may divert management’s attention and resources and result if substantial defense costs. An adverse judgment or settlement in any such litigation could delay or prevent the Merger or otherwise adversely affect our business and financial condition.

Certain of our directors and executive officers have interests in the Merger that may differ from, or be in addition to, the interests of our stockholders generally.

Mr. King is our Chief Executive Officer and Chairman of our Board of Directors and is also the Managing Partner of LKCM Headwater. The Merger Agreement also provides for specified treatment of outstanding equity awards and continued indemnification and insurance for our directors and officers. These interests may differ from, or be in addition to, the interests of our unaffiliated stockholders.