What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-12-09 compared with 2021-11-05 · 91 added, 86 removed, 185 unchanged (49% of the section changed)

1 unchanged sentence

The following management discussion and analysis ("MD&A") of the financial condition and results of operations of DXP Enterprises, Inc.

together with its subsidiaries (collectively "DXP," "Company," "us," "we," or "our") for the three and six months ended June 30, 2021 should be read in conjunction with our previous Annual Report on Form 10-K/A and our Quarterly Reports on Form 10-Q, and the consolidated financial statements and notes thereto included in such reports.

together with its subsidiaries (collectively "DXP," "Company," "us," "we," or "our") for the three and nine months ended September 30, 2021 should be read in conjunction with our previous Annual Report on Form 10-K/A and our Quarterly Reports on Form 10-Q, and the consolidated financial statements and notes thereto included in such reports.

The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP").

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COVID-19 Pandemic Impact

The pandemic continued to have a significant impact on our business for the six months ended June 30, 2021.

The pandemic continued to have a significant impact on our business for the nine months ended September 30, 2021.

The marketplace broadly, and the Company specifically, continued to operate with certain modifications to balance re-opening with employee and customer safety.

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DXP is focused on serving customers and communities in addressing the pandemic and providing products to assist in the ongoing recovery, supporting the needs and safety of employees and ensuring the Company continues to operate with a strong financial position.

As more vaccine is distributed and mask mandates evolve, the Company continues to monitor and refine its product assortment and actions to support customers’ return to regular operations.The COVID-19 pandemic has impacted and is likely to continue impacting our businesses and operations as well as the operations of our customers and suppliers.

As more vaccine is distributed and mask mandates evolve, the Company continues to monitor and refine its product assortment and actions to support customers’ return to regular operations.

The COVID-19 pandemic has impacted and is likely to continue impacting our businesses and operations as well as the operations of our customers and suppliers.

From a customer perspective, business re-openings, production and related activity throughout the quarter varied based on geography, industry and regional COVID-19 pandemic conditions.

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Many of our employees, depending on local conditions and regulations, have returned to a work-from-office environment, and we expect that trend to continue in the near term.

As of the end of the second quarter of 2021, we have remained undrawn on our $135 million bank revolver;

As of the end of the third quarter of 2021, we have remained undrawn on our $135 million bank revolver;

and it remains available for use in the event a need arises.

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Matters Affecting Comparability

There were 63 business days in the three months ended June 30, 2021 and June 30, 2020.

There were 126 business days in the six months ended June 30, 2021 and 127 business days in the six months ended June 30, 2020.

There were 64 business days in the three months ended September 30, 2021 and September 30, 2020.

There were 190 business days in the nine months ended September 30, 2021 and 191 business days in the nine months ended September 30, 2020.

Service Centers & Supply Chain Services Segments

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Economic conditions remain uncertain with regard to COVID-19 and its impact on various end markets, however, recent order activity has begun to improve as markets strengthened and gained greater visibility to vaccine roll-out strategies in various regions.

In the second quarter of 2021, we had approximately $249.0 million in sales in our Service Centers and Supply Chain Services segment, an increase of approximately 30.4 percent over the the second quarter of 2020.

In the third quarter of 2021 we had approximately $253.1 million in sales in our Service Centers and Supply Chain Services segment, an increase of approximately 27.6 percent over the third quarter of 2020.

While the Company continues to expect choppiness as the economy gradually gains confidence with COVID-19 vaccines, we expect financial results to continually improve with interim periods of potential setback.

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The oil and gas industry continues to be impacted by the COVID-19 pandemic, along with other industry specific factors including environmental concerns and issues.

In the first half of 2021, we began to see an improvement in the demand for oil and natural gas as the roll out of the COVID-19 vaccinations gradually improved around the globe and pandemic restrictions eased.

In 2021, we began to see an improvement in the demand for oil and natural gas as the roll out of the COVID-19 vaccinations gradually improved around the globe and pandemic restrictions eased.

The increasing optimism related to demand recovery has led to higher commodity prices and although demand levels remain below pre-pandemic levels, there is growing confidence of returning to 2019 levels in the coming years.

Also, contributing to the improvement in oil prices has been cooperation within OPEC to implement production cuts over the last year; however, it was recently announced that OPEC intends to increase production beginning in August 2021, that will continue into late 2022 to match increasing demand expectations.

Demand recovery could still possibly slow or pause as a result of additional waves of pandemic outbreak or heightened pandemic control measures.

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The IPS segment fabricates and assembles integrated pump system packages custom made to customer specifications, remanufactures pumps and manufactures branded private label pumps.

Three Months Ended June 30,

Three Months Ended September 30,

2021 % 2020 %

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Selling, general and administrative expenses 75,758 26.2 % 53,746 24.4 %

Impairment and other charges — — % 48,401 30.5 %

Income from operations $ 11,185 3.9 % $ (40,846) (18.6) %

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Diluted earnings per share 0.36 $ (1.95)

Three Months Ended June 30, 2021 compared to Three Months Ended June 30, 2020

Sales for the three months ended June 30, 2021 increased $34.3 million, or 13.6 percent, to approximately $285.7 million from $251.4 million for the prior year's corresponding period.

Sales from businesses acquired in December 2020 and April 2021 accounted for $37.7 million of the sales for the three months ended June 30, 2021.

This overall sales increase is the result of an increase in sales in our SC and SCS segments of $55.8 million and $2.3 million, partially offset by a decrease in sales of $23.8 million in our IPS segment.

Three Months Ended September 30, 2021 compared to Three Months Ended September 30, 2020

Sales for the three months ended September 30, 2021 increased $69.3 million, or 31.5 percent, to approximately $289.5 million from $220.2 million for the prior year's corresponding period.

Sales from businesses acquired in December 2020 and in 2021 accounted for $37.9 million of the sales for the three months ended September 30, 2021.

This overall sales increase is the result of an increase in sales in our SC, IPS and SCS segments of $47.6 million, $14.6 million and $7.1 million, respectively.

The fluctuations in sales are further explained in our business segment discussions below.

Three Months Ended June 30,

Three Months Ended September 30,

2021 2020 Change Change%

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Service Centers segment.

Sales for the SC segment increased by approximately $55.8 million, or 36.3 percent for the three months ended June 30, 2021 compared to the prior year's corresponding period.

Excluding $32.5 million of second quarter 2021 SC segment sales from businesses acquired in December 2020, Service Centers segment sales for the second quarter increased $23.3 million, or 15.1 percent from the prior year's corresponding period.

Sales for the SC segment increased by approximately $47.6 million, or 28.9 percent for the three months ended September 30, 2021 compared to the prior year's corresponding period.

Excluding $30.9 million of third quarter 2021 sales from businesses acquired in December 2020, Service Centers segment sales for the third quarter increased $16.7 million, or 10.1 percent from the prior year's corresponding period.

This sales increase is primarily the result of increased sales of rotating equipment, metal working, and bearings and power transmission products to customers engaged in variety of markets compared due to the negative economic impacts of the COVID-19 pandemic on 2020 sales results.

Innovative Pumping Solutions segment .

Sales for the IPS segment decreased by $23.8 million, or 39.3 percent for the three months ended June 30, 2021 compared to the prior year's corresponding period.

Excluding $5.2 million of second quarter 2021 IPS segment sales from a business acquired in April 2021, IPS segment sales for the second quarter decreased $28.9 million, or 47.8 percent from the prior year's corresponding period.

This decrease was primarily the result of a decrease in the capital spending by oil and gas producers and related businesses stemming from a decrease in U.S.

crude oil production previously announced due to the negative economic impacts of the COVID-19 pandemic.

Sales for the IPS segment increased by $14.6 million, or 66.6 percent, for the three months ended September 30, 2021 compared to the prior year's corresponding period.

Excluding $6.9 million of third quarter 2021 IPS segment sales from businesses acquired in 2021, IPS segment sales for the third quarter increased $7.6 million, or 34.9 percent, from the prior year's corresponding period.

This increase was primarily the result of an increase in the capital spending by oil and gas producers and related businesses stemming from the negative economic impacts of the COVID-19 pandemic on 2020 sales results.

Supply Chain Services segment.

Sales for the SCS segment increased by $2.3 million, or 6.1%, for the three months ended June 30, 2021, compared to the prior year's corresponding period.

Sales for the SCS segment increased by $7.1 million, or 21.2%, for the three months ended September 30, 2021, compared to the prior year's corresponding period.

The improved sales is primarily related to increased sales to customers in the food & beverage, general manufacturing and aerospace industries, compared to the negative economic impacts of the COVID-19 pandemic on 2020 sales results.

GROSS PROFIT.

Gross profit as a percentage of sales for the three months ended June 30, 2021 increased by approximately 197 basis points from the prior year's corresponding period.

Excluding the impact of the businesses acquired, gross profit as a percentage of sales increased by approximately 175 basis points.

The increase in the gross profit percentage, excluding the businesses acquired, is primarily the result of an approximate a 253 basis point increase in the gross profit percentage in our SC segment, 19 basis point increase in the gross profit percentage in our IPS segment, and a 11 basis point decrease in the gross profit percentage in our SCS segment.

Gross profit as a percentage of sales for the three months ended September 30, 2021 increased by approximately 219 basis points from the prior year's corresponding period.

Excluding the impact of the businesses acquired, gross profit as a percentage of sales decreased by approximately 453 basis points.

The decrease in the gross profit percentage excluding the businesses acquired is primarily the result of an approximate 726 basis point decrease in the gross profit percentage in our SC segment and a 55 basis point decrease in the gross profit percentage in our SCS segment partially offset by an 928 basis point increase in the gross profit percentage in our IPS segment..

Service Centers segment.

As a percentage of sales, the second quarter gross profit percentage for the SC increased approximately 247 basis points.

Adjusting for the businesses acquired, gross profit as a percentage of sales increased approximately 253 basis points from the prior year's corresponding period.

This was primarily as a result of volume increases and product mix.

Gross profit for the Service Centers segment, excluding businesses acquired, increased $11.1 million, or 25.4 percent, during the second quarter of 2021 compared to the prior year’s corresponding period.

The increase in gross profit is primarily the result of the improvement in sales due to the items discussed above.

As a percentage of sales, the third quarter gross profit percentage for the SC increased approximately 183 basis points.

Adjusting for the businesses acquired, gross profit as a percentage of sales decreased approximately 726 basis points from the prior year's corresponding period.

This was primarily was a result of volume decreases and product mix.

Gross profit for the Service Centers segment, excluding businesses acquired, decreased $8.2 million, or 16.5 percent, during the third quarter of 2021 compared to the prior year’s corresponding period.

Innovative Pumping Solutions segment.

As a percentage of sales, the second quarter gross profit percentage for the IPS segment increased approximately 129 basis points.

As a percentage of sales, the third quarter gross profit percentage for the IPS segment increased approximately 969 basis points.

Adjusting for the business acquired, gross profit as a percentage of sales increased approximately 928 basis points from the prior year's corresponding period.

The increase in gross profit percentage is primarily due to a mix shift (higher margin international work and domestic water and wastewater projects).

Gross profit dollars decreased $8.2 million, excluding business acquired, primarily as a result of a decrease in utilization as a result of significantly reduced capital expenditure budgets by our customers associated with the negative economic impacts of the COVID-19 pandemic.

Gross profit dollars increased $4.0 million, excluding business acquired, primarily as a result of an increase in project work as a result of an increase in capital spending by our customers compared to the negative economic impacts of the COVID-19 pandemic in 2020.

Supply Chain Services segment.

Gross profit as a percentage of sales for the SCS segment decreased approximately 55 basis points compared to the prior year's corresponding period.

Gross profit for the second quarter of 2021 increased $0.5 million or 5.6% compared to the prior year's corresponding period, primarily the result of the improvement in sales due to the items discussed above.

Gross profit for the third quarter of 2021 increased $1.5 million or 18.5% compared to the prior year's corresponding period.

SELLING, GENERAL AND ADMINISTRATIVE ("SG&A").

Selling, general and administrative expense for the three months ended June 30, 2021 increased by approximately $7.5 million, or 11.9%, to $70.4 million from $62.9 million for the prior year's corresponding period.

Selling, general and administrative expense for the three months ended September 30, 2021 increased by approximately $22.0 million, or 41.0%, to $75.8 million from $53.7 million for the prior year's corresponding period.

Selling, general and administrative expense from businesses acquired accounted for $7.2 million.

Excluding expenses from businesses acquired, SG&A for the quarter increased by $14.8 million, or 27.6%.

The increase in SG&A excluding businesses acquired is primarily the result of increased payroll, incentive compensation and related taxes and 401(k) expenses as a result of increased business activity associated with recovery from the negative economic impacts of the COVID-19 pandemic.

OPERATING INCOME.

Operating income for the second quarter of 2021 increased by $7.7 million to $14.8 million, from $7.1 million in the prior year's corresponding period.

This increase in operating income is primarily related to the above mentioned increase in sales and profitability with SC and IPS.

Operating income for the third quarter of 2021 increased by $52.0 million to $11.2 million, from an operating loss of $40.8 million in the prior year's corresponding period.

This increase in operating income is primarily related to an impairment and other charges of $48.4 million in 2020 with no comparable activity in 2021.

INTEREST EXPENSE.

Interest expense for the second quarter of 2021 increased $1.4 million compared with the prior year's corresponding period primarily due to a higher principal balance for the three months ended June 30, 2021 compared to the prior year's corresponding period as a result of the Company entering into a new term loan in December 2020.

This was partially offset by lower LIBOR rates for the three months ended June 30, 2021.

Interest expense for the third quarter of 2021 increased $1.5 million compared with the prior year's corresponding period primarily due to a higher principal balance for the three months ended September 30, 2021 compared to the prior year's corresponding period as a result of the Company entering into a new term loan in December 2020.

This was partially offset by lower LIBOR rates for the three months ended September 30, 2021.

INCOME TAXES.

Our effective tax rate from continuing operations was a tax expense of 17.4 percent for the three months ended June 30, 2021 compared to a tax expense of 23.1 percent for the three months ended June 30, 2020.

Our effective tax rate from continuing operations was a tax benefit of 8.9 percent for the three months ended September 30, 2021 compared to a tax expense of 22.5 percent for the three months ended September 30, 2020.

Compared to the U.S.

statutory rate for the three months ended June 30, 2020, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions which required an increase in reserves.

The effective tax rate was partially offset by research and development tax credits and other tax credits.

Six Months Ended June 30,

statutory rate for the three months ended September 30, 2021, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions recorded due to tax authorities’ aggressive auditing of research and development tax credits.

The effective tax rate was decreased by research and development tax credits and other tax credits.

Compared to the U.S.

statutory rate for the three months ended September 30, 2020, the effective tax rate was increased by state taxes, foreign taxes, and research and development tax credits and other tax credits.

The effective tax rate was decreased by nondeductible expenses and uncertain tax positions recorded due to tax authorities' aggressive auditing of research and development tax credits.

Nine Months Ended September 30,

2021 % 2020 %

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Selling, general and administrative expenses 211,587 25.8 % 188,484 24.4 %

Impairment and other charges — — % 48,401 8.7 %

Income from operations $ 32,264 3.9 % $ (22,389) (2.9) %

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Diluted earnings per share $ 0.78 $ (1.47)

Six Months Ended June 30, 2021 compared to Six Months Ended June 30, 2020

Sales for the six months ended June 30, 2021 decreased $21.1 million, or 3.8 percent, to approximately $531.3 million from $552.4 million for the prior year's corresponding period.

Sales from businesses acquired since December 2020 accounted for $66.1 million of the sales for the six months ended June 30, 2021.

This sales decrease is the result of a decrease in sales in our IPS and SCS segments of $70.5 million, and $10.1 million.

This was partially offset by an increase of $59.6 million in SC.

Nine Months Ended September 30, 2021 compared to Nine Months Ended September 30, 2020

Sales for the nine months ended September 30, 2021 increased $48.2 million, or 6.2 percent, to approximately $820.8 million from $772.6 million for the prior year's corresponding period.

Sales from businesses acquired since December 2020 accounted for $104.0 million of the sales for the nine months ended September 30, 2021.

This sales increase is the result of a an increase in sales in our SC segments of $107.2 million.

This was partially offset by a decrease in sales in our IPS and SCS segments of $56.0 million and $3.0 million.

The fluctuations in sales are further explained in our business segment discussions below.

Six Months Ended June 30,

Nine Months Ended September 30,

2021 2020 Change Change%

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Service Centers segment.

Sales for the SC segment increased by $59.6 million, or 17.7 percent for the six months ended June 30, 2021 compared to the prior year's corresponding period.

Excluding $60.9 million of Service Center segment sales for the six months ended June 30, 2021 from businesses acquired, SC segment sales decreased $1.4 million, or 0.4 percent from the prior year's corresponding period.

This sales decrease is primarily the result of decreased sales of metal working, safety services and bearings to customers engaged in the OEM oil and gas markets in connection with decreased capital spending by oil and gas producers.

Sales for the SC segment increased by $107.2 million, or 21.4 percent for the nine months ended September 30, 2021 compared to the prior year's corresponding period.

Excluding $91.8 million of Service Center segment sales for the nine months ended September 30, 2021 from businesses acquired, SC segment sales increased $15.4 million, or 3.1 percent from the prior year's corresponding period.

This sales increase is primarily the result of increased sales of metal working, safety services and bearings to customers engaged in the OEM oil and gas markets in connection with increased capital spending by oil and gas producers.

Innovative Pumping Solutions segment .

Sales for the IPS segment decreased by $70.5 million, or 54.0 percent for the six months ended June 30, 2021 compared to the prior year's corresponding period.

Excluding $5.2 million of IPS segment sales for the six months ended June 30, 2021 from a business acquired, IPS segment sales decreased $75.7 million, or 58.0 percent from the prior year's corresponding period.

Sales for the IPS segment decreased by $56.0 million, or 36.7 percent for the nine months ended September 30, 2021 compared to the prior year's corresponding period.

Excluding $12.1 million of IPS segment sales for the nine months ended September 30, 2021 from businesses acquired, IPS segment sales decreased $68.1 million, or 44.7 percent from the prior year's corresponding period.

This decrease was primarily the result of a decrease in the capital spending by oil and gas producers and related businesses stemming from a decrease in U.S.

crude oil production due to low crude prices and the economic impacts of COVID-19.

The current level of IPS sales activity could continue during the remainder of 2021.

crude oil production due to low crude prices and the economic impacts of COVID-19 beginning in the second quarter of 2020.

The current level of IPS sales activity could continue during the remainder of 2021, although recoveries in oil production activity and oil prices should increase spending.

Supply Chain Services segment.

Sales for the SCS segment decreased by $10.1 million, or 11.9 percent, for the six months ended June 30, 2021, compared to the prior year's corresponding period.

Sales for the SCS segment decreased by $3.0 million, or 2.6 percent, for the nine months ended September 30, 2021, compared to the prior year's corresponding period.

The decline in sales is primarily related to decreased sales to customers in the aerospace and oil and gas industries due to the economic impacts of the COVID-19 pandemic.

GROSS PROFIT.

Gross profit as a percentage of sales for the six months ended June 30, 2021 increased by approximately 180 basis points from the prior year's corresponding period.

Excluding the impact of the businesses acquired, gross profit as a percentage of sales increased by approximately 158 basis points.

The increase in the gross profit percentage is primarily the result of an approximate 270 basis point increase in the gross profit percentage in our IPS segment, and a 182 basis point increase in the gross profit percentage in our SC segment, excluding businesses acquired.

Gross profit as a percentage of sales for the nine months ended September 30, 2021 increased by approximately 195 basis points from the prior year's corresponding period.

Excluding the impact of the businesses acquired, gross profit as a percentage of sales decreased by approximately 56 basis points.

The increase in the gross profit percentage is primarily the result of an approximate 246 basis point increase in the gross profit percentage in our IPS segment offset by a 134 basis point decrease in the gross profit percentage in our SC segment, excluding businesses acquired.

Additionally, a 1 basis point increase in the gross profit percentage in our SCS segment contributed to the increase.

Service Centers segment.

As a percentage of sales, the six months ended June 30, 2021 gross profit percentage for the Service Centers increased approximately 187 basis points from the prior year's corresponding period.

This was primarily the result of increased sales of rotating equipment and bearings and power transmission products to customers engaged in non-oil and gas markets.

As a percentage of sales, the nine months ended September 30, 2021 gross profit percentage for the Service Centers increased approximately 189 basis points from the prior year's corresponding period.

This was primarily the result of increased sales of rotating equipment and bearings and power transmission products to customers engaged in non-oil and gas markets as well as the positive impact of the businesses acquired.

Innovative Pumping Solutions segment.

As a percentage of sales, the six months ended June 30, 2021 gross profit percentage for the IPS segment increased approximately 314 basis points from the prior year's corresponding period.

As a percentage of sales, the nine months ended September 30, 2021 gross profit percentage for the IPS segment increased approximately 274 basis points from the prior year's corresponding period.

The increase in gross profit percentage is primarily due to a mix shift (higher margin international work and domestic water and wastewater projects) as well as the shipment of negative gross profit percentage work completing in 2020.

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Gross profit as a percentage of sales increased approximately 1 basis points, compared to the prior year's corresponding period.

Gross profit for the second quarter of 2021 decreased $2.2 million or 11.1 percent compared to the prior year's corresponding period, primarily the result of the decline in sales due to the items discussed above.

Gross profit for the nine months ended September 30, 2021 decreased $0.7 million or 2.5 percent compared to the prior year's corresponding period, primarily the result of the decline in sales due to the items discussed above.

SELLING, GENERAL AND ADMINISTRATIVE ("SG&A").

Selling, general and administrative expense for the six months ended June 30, 2021 decreased by approximately $1.1 million, or 0.8 percent, to $135.8 million from $134.7 million for the prior year's corresponding period.

Selling, general and administrative expense for the nine months ended September 30, 2021 increased by approximately $23.1 million, or 12.3 percent, to $211.6 million from $188.5 million for the prior year's corresponding period.

Selling, general and administrative expense from businesses acquired accounted for $18.1 million.

Excluding expenses from businesses acquired, SG&A for the six months ended June 30, 2021 decreased by $9.8 million, or 7.3 percent.

The decrease in SG&A excluding businesses acquired is the result of decreased payroll, incentive compensation and related taxes and 401(k) expenses as a result of decreased business activity and cost reduction actions associated with COVID-19 and depressed demand in oil and gas markets.

Excluding expenses from businesses acquired, SG&A for the nine months ended September 30, 2021 increased by $5.0 million, or 2.7 percent.

The increase in SG&A excluding businesses acquired is the result of increased payroll, incentive compensation and related taxes and 401(k) expenses as a result of increased business activity in 2021 and cost reduction actions associated with COVID-19 and depressed demand in oil and gas markets in 2020.

OPERATING INCOME.

Operating income for the six months ended June 30, 2021 increased by $2.6 million or 14.2% to $21.1 million from $18.5 million in the prior year's corresponding period.

This increase in operating income is primarily related to the items discussed above.

Operating income for the nine months ended September 30, 2021 increased by $54.7 million or 244.1% to $32.3 million from an operating loss of $22.4 million in the prior year's corresponding period.

This increase in operating income is primarily related to an impairment and other charges of $48.4 million in 2020 with no comparable activity in 2021.

INTEREST EXPENSE.

Interest expense for the six months ended June 30, 2021 increased $2.3 million compared with the prior year's corresponding period primarily due to a higher principal balance for the six months ended June 30, 2021 compared to the prior year's corresponding period as a result of the Company entering into a new term loan in December 2020 partially offset by lower LIBOR rates for the six months ended June 30, 2021.

Interest expense for the nine months ended September 30, 2021 increased $3.8 million compared with the prior year's corresponding period primarily due to a higher principal balance for the nine months ended September 30, 2021 compared to the prior year's corresponding period as a result of the Company entering into a new term loan in December 2020 partially offset by lower LIBOR rates for the nine months ended September 30, 2021.

INCOME TAXES.

Our effective tax rate from continuing operations was a tax expense of 26.7 percent for the six months ended June 30, 2021 compared to a tax expense of 23.0 percent for the six months ended June 30, 2020.

Our effective tax rate from continuing operations was a tax expense of 13.7 percent for the nine months ended September 30, 2021 compared to a tax benefit of 22.4 percent for the nine months ended September 30, 2020.

statutory rate for the nine months ended September 30, 2021, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions recorded due to tax authorities’ aggressive auditing of research and development tax credits.

The effective tax rate was decreased by research and development tax credits and other tax credits.

Compared to the U.S.

statutory rate for the six months ended June 30, 2020, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions which required an increase in reserves.

The effective tax rate was partially offset by research and development tax credits and other tax credits..

statutory rate for the nine months ended September 30, 2020, the effective tax rate was increased by state taxes, foreign taxes, and research and development tax credits and other tax credits and was partially offset by nondeductible expenses and uncertain tax positions recorded due to tax authorities' aggressive auditing of research and development tax credits.

LIQUIDITY AND CAPITAL RESOURCES

General Overview

As of June 30, 2021, we had cash and restricted cash of $79.3 million and credit facility availability of $131.3 million.

We have a $135.0 million asset-based loan facility, partially offset by letters of credit of $3.7 million, that is due to mature in August 2022, under which we had no borrowings outstanding as of June 30, 2021 and a Term Loan B with $328.4 million in borrowings.

As of September 30, 2021, we had cash and restricted cash of $63.1 million and credit facility availability of $131.0 million.

We have a $135.0 million asset-based loan facility, partially offset by letters of credit of $4.0 million, that is due to mature in August 2022, under which we had no borrowings outstanding as of September 30, 2021 and a Term Loan B with $327.5 million in borrowings.

Our primary source of capital is cash flow from operations, supplemented as necessary by bank borrowings or other sources of financing.

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We also require cash to pay our lease obligations and to service our debt.

The following table summarizes our net cash flows generated by or used in operating activities, net cash provided by or used in investing activities and net cash used in financing activities for the periods presented (in thousands) :

Six Months Ended June 30,

The following table summarizes our net cash flows generated by operating activities, net cash used in investing activities and net cash used in financing activities for the periods presented (in thousands) :

Nine Months Ended September 30,

Net Cash Provided by (Used in):

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Operating Activities

The Company generated $16.2 million of cash in operating activities during the six months ended June 30, 2021 compared to $61.8 million of cash generated during the prior year's corresponding period.

The Company generated $22.8 million of cash in operating activities during the nine months ended September 30, 2021 compared to $92.2 million of cash generated during the prior year's corresponding period.

The $69.4 million decrease in the amount of cash provided between the two periods was primarily driven by the increase in accounts receivables associated with trade accounts receivables from recent acquisitions without comparable activity in 2020 and increased business activity in 2021.

Investing Activities

For the six months ended June 30, 2021, net cash used in investing activities was $44.7 million compared to $19.2 million use of cash during the prior year’s corresponding period.

This $25.5 million increase was primarily driven by the purchase of CVI in the second quarter of 2021.

For the six months ended June 30, 2021, purchases of property and equipment decreased to approximately $1.5 million compared to $5.1 million in 2020 primarily due to reduced capital spending as a result of company-wide cost cutting measures in response to the COVID-19 pandemic.

For the nine months ended September 30, 2021, net cash used in investing activities was $66.3 million compared to $20.5 million use of cash during the prior year’s corresponding period.

This $45.8 million increase was primarily driven by the purchase of CVI, PMI and Premier in 2021.

For the nine months ended September 30, 2021, purchases of property and equipment decreased to approximately $3.0 million compared to $6.5 million in 2020 primarily due to reduced capital spending as a result of company-wide cost cutting measures in response to the COVID-19 pandemic.

The current year also benefited from the sale of a corporate asset totaling $1.3 million.

Financing Activities

For the six months ended June 30, 2021, net cash used in financing activities was $12.0 million, compared to net cash used in financing activities of $17.1 million during the prior year’s corresponding period.

The activity in the period was primarily attributed to Term Loan B required principal payments of $1.7 million in 2021 compared to $16.3 million in required principal and optional prepayments in 2020.

For the nine months ended September 30, 2021, net cash used in financing activities was $12.9 million, compared to net cash used in financing activities of $27.9 million during the prior year’s corresponding period.

The activity in the period was primarily attributed to Term Loan B required principal payments of $2.5 million in 2021 compared to $26.9 million in required

principal and optional prepayments in 2020.

This was partially offset by share purchases in 2021 of $8.8 million with no comparable activity in 2020.

On May 12, 2021, the Company announced that its Board of Directors authorized a share repurchase program (the “program”) under which up to $85.0 million or 1.5 million shares of its outstanding common stock may be acquired in the open market over the next 24 months at the discretion of management.

During the six months ended June 30, 2021 we purchased 1.0 million shares for $29.2 million.

During the nine months ended September 30, 2021 we purchased 1.0 million shares for approximately $29.2 million.

Such consideration was funded with existing cash balances and an agreement to pay sellers over four equal installments beginning on June 15, 2021.

The remaining three installments of $20.4 million were included in other current liabilities as of June 30, 2021.

The remaining three installments of $20.4 million were included in other current liabilities as of September 30, 2021.

We believe this is adequate funding to support working capital needs within the business.

14 unchanged sentences

For a more complete discussion of our significant accounting policies and business practices, refer to the consolidated annual report on Form 10-K/A filed with the Securities and Exchange Commission on October 22, 2021.

The results of operations for the six months ended June 30, 2021 are not necessarily indicative of results expected for the full fiscal year.

The results of operations for the nine months ended September 30, 2021 are not necessarily indicative of results expected for the full fiscal year.

RECENT ACCOUNTING PRONOUNCEMENTS

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis