DISTRIBUTION SOLUTIONS GROUP, INC. The following discussion and analysis of 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, theTestEquity Acquisition, LLC and 301HW Opus Holdings, Inc. (conducting business as Gexpro Services) audited consolidated financial statements and accompanying notes included in the Company's Form 8-K/A as filed onJune 15, 2022 , and theLawson Products, Inc. audited consolidated financial statements and accompanying notes included in DSG's Annual Report on Form 10-K filed for the year endedDecember 31, 2021 .
References to "DSG", the "Company", "we", "our" or "us" refer to
Overview
Organization and Business Combination
EffectiveMay 5, 2022 ,Distribution Solutions Group, Inc. ("DSG"), aDelaware corporation formerly known asLawson Products, Inc. , changed its corporate name from "Lawson Products, Inc. " to "Distribution Solutions Group, Inc. " DSG is a specialty distribution company structure providing value added distribution solutions to the maintenance, repair and operations ("MRO"), original equipment manufacturer ("OEM") and industrial technology markets. DSG has three principal operating companies:Lawson Products, Inc. ("Lawson"),TestEquity Acquisition, LLC ("TestEquity") and 301HW Opus Holdings, Inc. , conducting business as Gexpro Services ("Gexpro Services"). The complementary distribution operations of Lawson,TestEquity and Gexpro Services were combined in the Mergers for the purpose of creating a specialty distribution company enabling each of Lawson,TestEquity and Gexpro Services to maintain their respective high-touch, value-added service delivery models and customer relationships in their specialty distribution businesses under the leadership of their separate business unit management. The DSG leadership team provides oversight to the separate leadership teams of each of the operating companies. This structure enables the combined company to leverage best practices, back-office resources and technologies across the three operating companies to help drive cost synergies and efficiencies. The combined company has the ability to utilize its combined financial resources to accelerate a strategy of expansion through both business acquisitions and organic growth. Refer to the section entitled "Organization" in Note 1 - Nature of Operations and Basis of Presentation in Part 1. Financial Statements, which section is incorporated herein by reference, for a description of the TestEquity Merger and Gexpro Services Merger consummated onApril 1, 2022 .
Our Three Principal Operating Companies
Lawson
Lawson is a distributor of products and services to the industrial, commercial,
institutional, and governmental maintenance, repair and operations ("MRO")
marketplace. Lawson distributes MRO products to its customers through a network
of sales representatives throughout the U.S. and Canada .
Background and Operations - Lawson delivers quality products to customers and
offers them extensive product knowledge, product application expertise and
Vendor Managed Inventory ("VMI") services. Lawson competes for business
primarily by offering a value-added service approach in which highly trained
sales representatives manage the product inventory for customers. The VMI model
makes it less likely that customers will run out of a product while optimizing
their inventory levels. Lawson ships products to its customers in all 50 states,
Puerto Rico , Canada , Mexico and the Caribbean .
Vision/Strategy - Lawson's vision is to be its customers' first choice for maintenance, repair and operational solutions that improve their operating performance. Lawson plans to achieve its vision by working closely with customers to maintain and enhance their operations by providing them with quality products, superior service and innovative solutions and to grow both organically and through acquisitions.
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 theU.S. economy which has been affected by the COVID-19 pandemic. DSG believes 37 -------------------------------------------------------------------------------- Table of Contents that the Purchasing Managers Index ("PMI") published by theInstitute for Supply Management is an indicative measure of the relative strength of the economic environment of the industry in which Lawson operates. The PMI is a composite index of economic activity inthe United States manufacturing sector. DSG believes that a measure of that index above 50 generally indicates expansion of the manufacturing sector while a measure below 50 generally represents contraction. The average monthly PMI was 52.2 in the third quarter of 2022 compared to 60.2 in the third quarter of 2021. Lawson's sales are 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 uses an inside sales team and an e-commerce site to generate sales.
Background and Operations - Based out ofMoorpark, California ,TestEquity is a large, comprehensive provider of electronic test solutions inthe United States supporting the aerospace, defense, automotive, electronics, education, and medical industries.TestEquity designs, rents and sells a full line of high-quality environmental test chambers. In addition to a large array of test and measurement products,TestEquity also offers calibration, refurbishment and rental solutions and a wide array of refurbished products.TestEquity continues to benefit from ubiquitous electronification of all types of products across most industries including IOT, EV, and 5G.
Techni-Tool is one of the industry's largest solder, soldering equipment and electronic production distributors.Techni-Tool offers a wide range of products to support electronic production as well as compliance testing. In addition to the approximately 80,000 brand specific products offered,Techni-Tool also provides vendor managed inventory solutions and dedicated technical support.Jensen Tools , as a top distributor for the electronics MRO customer base, has access to approximately 400 suppliers and over 70,000 brand specific products.Jensen Tools offers private label Jensen branded hand tools that have been developed over years of customer usage and manufactured to a specified and demanding tolerance level and is viewed as a leader in the industry.Jensen Tools employs a dedicated team of engineering, operational and sales professionals who focus on designing and building quality tool kits for its customers. During the quarter, the final stage of movingTechni-Tool andJensen Tools to theTestEquity platform was completed, meaning that customers for each of these brands now have full access to the 230,000 active products acrossTestEquity group . Vision/Strategy -TestEquity intends to grow sales organically, pursue acquisitions and continue to expand and improve its service offerings to its customers. In particular,TestEquity strives to improve its digital experience, with a consistent approach for all of its brands.TestEquity intends to seek to increase its market share through continued expansion of product lines and greater penetration of the eCommerce market, enabled through investment in key digital talent and leverage of the existingTestEquity andTEquipment platforms.TestEquity expects to benefit from its improved integrated organization and processes, driving improved gross margin and financial operating leverage. Sales Drivers - Across both the test and measurement and electronic production supplies businesses, the North American market is highly fragmented with competitors ranging from large global distributors to national and regional distributors.TestEquity believes that the PMI is an indicative measure of the relative strength of the economic environment of the industry in whichTestEquity operates. The PMI index is a composite index of economic activity inthe United States manufacturing sector.TestEquity believes that a measure of that index above 50 generally indicates expansion of the manufacturing sector while a measure below 50 generally represents contraction. The average monthly PMI was 52.2 in the third quarter of 2022 compared to 60.2 in the third quarter of 2021. 38
-------------------------------------------------------------------------------- Table of ContentsTestEquity management focuses on the internal metric of Sales per Day ("SPD") and Day Adjust Growth ("DAG"). The SPD calculates and comparesTestEquity's total sales divided by the number of selling days, adjusted for weekends and holidays. A selling day generally represents a business day in whichTestEquity ships products to its customers. The DAG represents the percentage increase or decrease in the SPD for a defined period of time. Specifically in respect of its electronic production supplies business, the current semi-conductor chip shortage, due in significant part to the COVID-19 pandemic, is negatively impactingTestEquity's business as such chips are key elements to the electronic production process.TestEquity anticipates that recovery of this important part of its customers' supply chain may not occur until 2023. Gexpro Services Gexpro Services is a world-class global supply chain solutions provider, specializing in the development of mission critical production line management, aftermarket and field installation programs. Gexpro Services provides comprehensive supply chain management solutions, including a full technology suite offering of vendor managed inventory, kitting, global logistics management, manufacturing localization and import expertise, value engineering and quality assurance. Gexpro Services' end-to-end project management is designed to support manufacturing OEMs with their engineered material specifications, fulfillment, and quality requirements to improve their total cost of ownership. Gexpro Services has manufacturing and supply chain operations in over 32 Service Center sites across nine countries including key geographies inNorth America ,South America ,Asia ,Europe , and theMiddle East . Gexpro Services serves customers in six vertical markets, including renewables, industrial power, consumer and industrial, technology, transportation, and aerospace and defense. Background and Operations - Gexpro Services was formed inNovember 2019 and, inFebruary 2020 , acquired the "Gexpro Services" business from French distributor Rexel S.A. via a carve-out acquisition. Gexpro Services fully separated its "Gexpro Services" operations from Rexel and operates as a stand-alone organization with its own leadership team, operating activities, financial systems and team members.
As a top distributor and service provider to the OEM market, Gexpro Services has
approximately 3,100 suppliers offering approximately 60,000 products. These
products are inventoried and sourced through 32 locations in
Vision/Strategy - Gexpro Services intends to grow organically through market share expansion primarily through new product introduction, increased sales of products and services to existing customers and expansion of its customer base. Gexpro Services believes that its services benefit its customers by helping them reduce their direct and indirect procurement costs and total cost of ownership for high volume, low value Class C parts, and that its services can help drive substantial cost savings for its customers. Additionally, Gexpro Services intends to grow its business through strategic, accretive acquisitions, and through continued improvement in service and product offerings to its customers. Sales Drivers - Gexpro Services believes that the PMI Index is an indicative measure of the relative strength of the economic environment of the industry in which Gexpro Services operates. The PMI index is a composite index of economic activity inthe United States manufacturing sector. Gexpro Services believes that a measure of that index above 50 generally indicates expansion of the manufacturing sector while a measure below 50 generally represents contraction. The average monthly PMI was 52.2 in the third quarter of 2022 compared to 60.2 in the third quarter of 2021
Key Factors Affecting our Results of Operations and Financial Condition
Supply Chain Disruptions
Along with the broader economy, we continue to be affected by rising supplier
costs caused by inflation and increased transportation and labor costs. This
results in challenges in acquiring and receiving inventory in a timely fashion
and fulfilling customer orders, which offset some of the sales gains we recorded
in 2022 compared to 2021. The supply chain disruptions have also led to higher
product costs which have contributed to lower gross margins as a percentage of
sales compared to the prior year. We have instituted various price increases
during 2021 and 2022 in response to rising supplier costs, as well as increased
transportation and labor costs.
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Cyber Security Incident
In February 2022 , DSG became aware that its computer network was the subject of
a cyber incident potentially involving unlawful access. DSG engaged a
cybersecurity forensics firm to assist in the investigation of the incident and
to assist in securing its computer network.
Because of the nature of the information that may have been compromised, DSG was
required to notify the parties whose information was potentially compromised of
the incident as well as various governmental agencies and has taken other
actions, such as offering credit monitoring services. DSG has not incurred
material costs and, at this time, is unable to estimate the total cost of any
remediation that may be required. As of September 30, 2022 , DSG received
notification from its cyber insurance provider that a portion of the claim
submitted for costs incurred was approved and therefore we recorded a receivable
of $0.4 million which is included in Prepaid expenses and other current assets
in the Unaudited Condensed Consolidated Balance Sheet.
Critical Accounting Policies and Use of Estimates
We have disclosed our significant accounting policies in Note 2 - Summary of Significant Accounting Policies to the unaudited condensed consolidated financial statements. The following provides information on the accounts requiring more significant estimates.
Inventory Reserves - Inventories principally consist of finished goods stated at the lower of cost or net realizable value using the first-in-first-out method for the Lawson andTestEquity segments and weighted average for the Gexpro Services segment. Most of our products are not exposed to the risk of obsolescence due to technology changes. However, some of our products do have a limited shelf life, and from time to time we add and remove items from our catalogs, brochures or website for marketing and other purposes. To reduce the cost basis of inventory to a lower of cost or net realizable value, a reserve is recorded for slow-moving and obsolete inventory based on historical experience and monitoring of current inventory activity. Estimates are used to determine the necessity of recording these reserves based on periodic detailed analysis using both qualitative and quantitative factors. As part of this analysis, the Company considers several factors including the inventories length of time on hand, historical sales, product shelf life, product life cycle, product category and product obsolescence. In general, depending on the product category, we reserve inventory with low turnover at higher rates than inventory with higher turnover. AtSeptember 30, 2022 , our inventory reserve was$9.5 million , equal to approximately 3.5% of our gross inventory. A hypothetical change of one hundred basis points to our reserve as a percent of total inventory would have affected our cost of goods sold by$2.7 million . 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 -
The first step in the multi-step process to determine if goodwill has been
impaired and to what degree is to review the relevant qualitative factors that
could cause the fair value of the reporting unit to decrease below the carrying
value of the reporting unit. The Company considers factors such as
macroeconomic, industry and market conditions, cost factors, overall financial
performance and other relevant factors that would affect the individual
reporting units. If the Company determines that it is more likely than not that
the fair value of the reporting unit is greater than the carrying value of the
reporting unit, then no further impairment testing is needed. If the Company
determines that it is more likely than not that the carrying value of the
reporting unit is greater than the fair value of the reporting unit, the Company
will move to the next step in the process. The Company will estimate the fair
value of the reporting unit and compare it to the reporting unit's carrying
value. If the carrying value of the reporting unit exceeds its fair value, the
Company will record an impairment of goodwill equal to the amount the carrying
value of the reporting unit exceeds its fair value, up to the total amount of
goodwill previously recognized.
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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, estimations of future
cash flows, discount rates, recurring revenues 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; 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.
Valuation of Earnout Derivative Liability - The Company's earnout derivative liability is classified as a Level 3 instrument and is measured at fair value on a recurring basis. The fair value of the earnout derivative liability is measured using the Monte Carlo simulation valuation model using a distribution of potential outcomes on a monthly basis for the year endedDecember 31, 2022 . Inputs to that model include the expected time to liquidity, the risk-free interest rate over the term, expected volatility based on representative peer companies and the estimated fair value of the underlying class of common stock. The significant unobservable inputs used in the fair value measurement of the earnout derivative liability are the fair value of the underlying stock at the valuation date and the estimated term of the earnout arrangement periods. Generally, increases (decreases) in the fair value of the underlying stock and estimated term would result in a directionally similar impact to the fair value measurement. Revenue Recognition - For reporting purposes, the Lawson segment has two separate performance obligations including products and vendor managed inventory services. The allocation of product and service revenue as well as the estimation of service costs requires judgments and assumptions including the standalone selling prices, the period of time that it takes for the service obligation to be fulfilled and the amount of time spent on vendor managed inventory services during the sales process. Changes in various assumptions could increase or decrease the allocation of service revenue and related costs; however, would not materially impact total reported revenues or reported operating income.
Factors Affecting Comparability to Prior Periods
Our results of operations are not directly comparable to prior results for the periods presented due to the Mergers that were completed onApril 1, 2022 . The Mergers were accounted for as a reverse merger under the acquisition method of accounting in accordance with the accounting guidance for reverse acquisitions as provided in Accounting Standards Codification 805, Business Combinations ("ASC 805"). Under this guidance,TestEquity and Gexpro Services were treated as a combined entity as the accounting acquirer for financial reporting purposes, and DSG was identified as the accounting acquiree. This determination was primarily made asTestEquity and Gexpro Services were under the common control of an entity that owns a majority of the voting rights of the combined entity, and therefore, only DSG experienced a change in control. Accordingly, the unaudited condensed consolidated financial statements as ofSeptember 30, 2022 andDecember 31, 2021 and for the three and nine months endedSeptember 30, 2022 and 2021 reflect the results of operations and financial position ofTestEquity and Gexpro Services on a consolidated basis, and the results of operations of DSG's legacy Lawson business are included only subsequent, and not prior, to theApril 1, 2022 Merger Date. 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. 41
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Non-GAAP Adjusted EBITDA
Management believes Adjusted EBITDA is an important measure of the Company's operating performance. We define Adjusted EBITDA as operating income plus depreciation and amortization, costs related to the execution of the Mergers, stock-based compensation, severance costs, amortization of fair value step-up resulting from the Mergers, acquisition related costs, and other non-recurring items. The following table provides our calculation of Adjusted EBITDA for the three and nine months endedSeptember 30, 2022 and 2021:
Reconciliation of Operating Income to Non-GAAP Adjusted EBITDA (Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2022(8) 2021 2022(8) 2021
Operating income (loss) $ 22,027 $
5,491 $ 29,128
8,979 4,729 31,314 13,649
EBITDA 31,006 10,220 60,442 26,861
Stock-based compensation(1) (3,568) - 445 -
Severance costs(2) 944 15 2,353 34
Merger/integration costs(3) 2,364 630 9,597 1,158
Inventory net realizable value
adjustment(4) 1,737 - 1,737 -
Inventory step-up(5) 1,082 118 2,867 118
Acquisition related costs(6) 38 762 1,212 1,797
Other non-recurring(7) 1,097 87 1,202 217
Adjusted EBITDA $ 34,700 $ 11,832 $ 79,855 $ 30,185 (1) Expense (benefit) primarily for stock-based compensation, of which a portion varies with the Company's stock price.
(2) Includes severance expense from actions taken in 2022 and 2021, not related to a formal restructuring plan.
(3) Merger transaction costs related to the negotiation, review and execution of the Merger Agreements relating to the Mergers and subsequent integration costs.
(4) Inventory net realizable value adjustment recorded to reduce inventory related to discontinued products where the anticipated net realizable value was lower than the cost reflected in our records.
(5) Inventory fair value step-up adjustment for Lawson resulting from the reverse merger acquisition accounting.
(6) Expense for acquisition related costs, unrelated to the Mergers.
(7) Other non-recurring costs consists of acquisition integration costs and other non-recurring items.
(8) Includes the operating results of Lawson subsequent, but not prior, to the
Management uses operating income and Adjusted EBITDA to evaluate the performance
of its reportable segments. See Note 20 - Segment Information of our unaudited
condensed consolidated financial statements within Part I. Item 1. Financial
Information for additional information about our reportable segments. The
following table provides Adjusted EBITDA by reportable segment:
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2022 2021 2022 2021
Adjusted EBITDA
Lawson(1) $ 9,670 $ - $ 19,077 $ -
TestEquity 10,122 5,524 24,260 11,462
Gexpro Services 12,485 6,308 32,409 18,723
All Other 2,423 - 4,109 -
Consolidated Adjusted EBITDA $ 34,700 $ 11,832 $ 79,855 $ 30,185 (1)Includes the operating results of Lawson subsequent, but not prior, to the
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Supplemental Information - Lawson Non-GAAP Adjusted Operating Income and Non- GAAP Adjusted EBITDA
For management to discuss Lawson's operating results on a comparable basis, Lawson's historical, pre-merger components of operating income have been provided separately in the table below. In addition, Lawson's GAAP results of operations were adjusted to include the results prior to the Merger Date in order to reflect the total operating activities attributable to Lawson for each period presented. Management believes this historical information provides the most meaningful basis of comparison for Lawson's operations, is more useful in identifying current business trends, and is important for the user of our financial statements in understanding Lawson's business. Refer to Note 1 - Nature of Operations and Basis of Presentation and Note 3 - Business Acquisitions within Part I. Item 1. Financial Information of the unaudited condensed consolidated financial statements for information about the Mergers. These amounts are not considered to be prepared in accordance with GAAP, have not been prepared as pro forma results under applicable regulations, may not reflect the actual results we would have achieved had the Mergers occurred at the beginning of 2021, and should not be viewed as a substitute for the results of operations presented in accordance with GAAP. Lawson's historical operating results prior to the Mergers were obtained from the unaudited condensed consolidated financial statements included in DSG's Quarterly Reports on Form 10-Q filed for the quarterly periods endedSeptember 30, 2021 andMarch 31, 2022 . Lawson Non-GAAP Adjusted Results - Calculation of Supplemental Information (Unaudited) (in thousands) Three Months Ended September 30, 2022 Three Months Ended September 30, 2021 GAAP Pre-Merger Adjusted GAAP Pre-Merger Adjusted Lawson Operating Income Results(1) Results(2) Results(3) Results(1) Results(4) Results(3) Revenue$ 109,418 $ -$ 109,418 $ -$ 93,686 $ 93,686 Cost of goods sold 53,183 - 53,183 - 42,559 42,559 Gross profit 56,235 - 56,235 - 51,127 51,127 Selling, general and administrative expenses 50,883 - 50,883 - 47,639 47,639 Operating income (loss)$ 5,352 $ -$ 5,352 $ -$ 3,488 $ 3,488 Lawson Adjusted EBITDA(5)$ 9,670 $ -$ 9,670 $ -$ 7,560 $ 7,560 (1)Operating income prepared in accordance with GAAP, which includes Lawson's results of operations subsequent, but not prior, to theApril 1, 2022 Merger Date. For the three months endedSeptember 30, 2021 , the operating results of Lawson were not included in the Company's GAAP operating results. See Note 1- Nature of Operations and Basis of Presentation and Note 3 - Business Acquisitions within Part I. Item 1. Financial Information of the unaudited condensed consolidated financial statements.
(2)All of Lawson's results of operations for the three months ended
(3)Lawson's results of operations adjusted for comparability on a period-over-period basis. These non-GAAP results represent Lawson's total operating activities for the three months endedSeptember 30, 2022 and 2021, regardless of the Merger Date (that is, they reflect both pre- and post-Merger results of Lawson). (4)Lawson's results of operations for the three months endedSeptember 30, 2021 , which occurred prior to theApril 1, 2022 Merger Date, were not included in the Company's GAAP operating results under reverse merger acquisition accounting. See Note 1- Nature of Operations and Basis of Presentation and Note 3 - Business Acquisitions within Part I. Item 1. Financial Information of the unaudited condensed consolidated financial statements.
(5)Refer to the Non-GAAP Adjusted EBITDA section above for a reconciliation of Adjusted EBITDA to operating income.
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(in thousands) Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021
Pre-Merger Adjusted GAAP Pre-Merger Adjusted
Lawson Operating Income GAAP Results(1) Results(2) Results(3) Results(1) Results(4) Results(3)
Revenue $ 216,752 $ 104,902 $ 321,654 $ - $ 281,877 $ 281,877
Cost of goods sold 103,733 49,371 153,104 - 130,441 130,441
Gross profit 113,019 55,531 168,550 - 151,436 151,436
Selling, general and
administrative expenses 110,227 44,435 154,662 - 141,249 141,249
Operating income (loss) $ 2,792 $ 11,096 $ 13,888 $ - $ 10,187 $ 10,187
Lawson Adjusted EBITDA(5) $ 19,077 $ 8,042 $ 27,119 $ - $ 23,551 $ 23,551
(1)Operating income prepared in accordance with GAAP, which includes Lawson's
results of operations subsequent, but not prior, to the April 1, 2022 Merger
Date. For the nine months ended September 30, 2021 , the operating results of
Lawson were not included in the Company's GAAP results. See Note 1- Nature of
Operations and Basis of Presentation and Note 3 - Business Acquisitions within
Part I. Item 1. Financial Information of the unaudited condensed consolidated
financial statements.
(2)Lawson's results of operations for the three months ended March 31, 2022 ,
which occurred prior to the April 1, 2022 Merger Date, were not included in the
Company's GAAP operating results under reverse merger acquisition accounting.
(3)Lawson's results of operations adjusted for comparability on a
period-over-period basis. These non-GAAP results represent Lawson's total
operating activities for the nine months ended
(4)Lawson's results of operations for the nine months endedSeptember 30, 2021 , which occurred prior to theApril 1, 2022 Merger Date, were not included in the Company's GAAP operating results under reverse merger acquisition accounting. See Note 1- Nature of Operations and Basis of Presentation and Note 3 - Business Acquisitions within Part I. Item 1. Financial Information of the unaudited condensed consolidated financial statements.
(5)Refer to the Non-GAAP Adjusted EBITDA section above for a reconciliation of Adjusted EBITDA to operating income.
Composition of Results of Operations
The following results of operations for the three and nine months endedSeptember 30, 2022 and 2021 include the accounts of theTestEquity and Gexpro Services combined entity, as the accounting acquirer. The results of Lawson have been included only subsequent, and not prior to, to theApril 1, 2022 Merger Date. 44
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