Distribution Solutions Group (DSGR) risk factors, FY2024 10-K

Business Risks

1. 01A significant portion of our inventory may become obsolete
2. 02Work stoppages and other disruptions at transportation centers or shipping ports, along with other supply chain disruptions, may adversely affect our ability to obtain inventory and make deliveries to our customers
3. 03Changes in our customers, product mix and pricing strategy could cause our gross profit margin percentage to decline in the future
4. 04Disruptions of our information and communication systems could adversely affect the Company
5. 05Cyber-attacks or other information security incidents could have a material adverse effect on our business strategy, results of operations or financial condition and subject us to additional legal costs
6. 06The inability to successfully recruit, integrate and retain productive sales representatives could adversely affect our business, financial condition and operating results
7. 07Failure to retain talented employees, managers and executives could negatively impact our business and operating results
8. 08There may be difficulties in integrating certain operations of TestEquity’s and Gexpro Services’ respective businesses with our other operations, and the failure to successfully combine those operations within our expected timetable could adversely affect our future results and the market price of our common stock
9. 09If our management is not able to effectively manage the process following the closing of the Mergers, or if any significant business activities are interrupted as a result of this process, our businesses could suffer
10. 10The inability of management to successfully implement changes in operating processes could lead to disruptions in our operations
11. 11Any pursuit or completion by DSG of additional acquisition opportunities would involve risks that could adversely affect our business, financial condition and results of operations
12. 12We operate in highly competitive markets
13. 13We may be required to recognize impairment charges for goodwill and other intangible assets
14. 14Changes that affect governmental and other tax-supported entities, including but not limited to changes arising from geopolitical instability and military hostilities, could negatively impact our revenue and earnings
15. 15A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis
16. 16The changes made in the third quarter of 2024 to our segment reporting structure could be confusing to investors and may not have the desired effects
17. 17We have a significant amount of indebtedness, and our significant indebtedness could adversely affect our business, financial condition and results of operations
18. 18Failure to adequately fund our operating and working capital needs through cash generated from operations and borrowings available under our Amended Credit Agreement could negatively impact our ability to invest in our business and maintain our capital structure
19. 19Our business, financial condition and operating results could be materially adversely affected if we failed to meet the covenant requirements of our Amended Credit Agreement
20. 20Government efforts to combat inflation, along with other interest rate pressures, could lead to higher financing costs

Common Stock Risks

1. 21The market price of our common stock may decline
2. 22Entities affiliated with LKCM beneficially own a significant number of shares of DSG common stock, and any sales of any such shares or the possibility of any such sales could have a negative effect on the price of DSG common stock

Legal and Regulatory Risks

1. 23A violation of federal, state or local environmental protection regulations could lead to significant penalties and fines or other remediation costs
2. 24Our results of operations could be affected by changes in taxation
3. 25From time to time we may become subject to income tax audits, sales tax audits or similar proceedings, and as a result we may incur additional costs and expenses or owe additional taxes, interest and penalties that may negatively impact our operating results
4. 26Our international operations subject us to additional legal and regulatory regimes
5. 27As a result of the Mergers, DSG’s ability to use its net operating losses and certain other tax attributes generated prior to the Mergers may be subject to limitations
6. 28Public health emergencies, whether domestic or international, such as the COVID-19 pandemic, may materially adversely affect our business strategy, financial condition or results of operations

General Risks

1. 29Our results of operations may be adversely impacted by a downturn in the economy or in certain sectors of the economy
2. 30Changes in energy costs, tariffs, transportation costs and the cost of raw materials used in our products, and other inflationary pressures, could impact our cost of goods and distribution and occupancy expenses, which may result in lower operating margins
3. 31Supply chain constraints, inflationary pressure and labor shortages could impact our cost of goods and other costs and expenses, which may result in lower gross profit margins and/or otherwise materially adversely affect our business, financial condition and results of operations
4. 32The Company is exposed to the risk of foreign currency changes