DXP ENTERPRISES INC 10-Q

ITEM 1: FINANCIAL STATEMENTS DXP ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (in thousands, except per share amounts) (unaudited) Three Months Ended March 31, 2022 2021 Sales $ 319,411 $ 245,587 Cost of sales 224,527 173,957 Gross profit 94,884 71,630 Selling, general and administrative expenses 73,325 65,397 Income from operations 21,559 6,233 Other (income) expense 536 ( 430 ) Interest expense 5,162 5,243 Income before income taxes 15,861 1,420 Provision for income taxes 3,332 1,261 Net income 12,529 159 Net loss attributable to noncontrolling interest ( 113 ) ( 212 ) Net income attributable to DXP Enterprises, Inc. 12,642 371 Preferred stock dividend 23 23 Net income attributable to common shareholders $ 12,619 $ 348 Net income $ 12,529 $ 159 Currency translation adjustments 1,669 1,491 Comprehensive income $ 14,198 $ 1,650 Earnings per share (Note 10) : Basic $ 0.68 $ 0.02 Diluted $ 0.65 $ 0.02 Weighted average common shares outstanding : Basic 18,534 19,186 Diluted 19,374 20,026 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 DXP ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) (unaudited) March 31, 2022 December 31, 2021 ASSETS Current assets: Cash $ 36,559 $ 48,989 Restricted cash 91 91 Accounts Receivable, net of allowance of $ 7,176 and $ 7,759 228,213 218,137 Inventories 111,862 100,894 Costs and estimated profits in excess of billings 20,504 17,193 Prepaid expenses and other current assets 14,317 9,522 Federal income taxes receivable 1,019 9,748 Total current assets 412,565 404,574 Property and equipment, net 50,269 51,880 Goodwill 301,563 296,541 Other intangible assets, net 77,005 79,205 Operating lease ROU assets 56,267 57,221 Other long-term assets 4,646 4,806 Total assets $ 902,315 $ 894,227 LIABILITIES AND EQUITY Current liabilities: Current maturities of long-term debt $ 3,300 $ 3,300 Trade accounts payable 81,450 77,842 Accrued wages and benefits 23,515 23,006 Customer advances 13,498 12,924 Billings in excess of costs and estimated profits 5,328 3,581 Federal income taxes payable 104 — Short-term operating lease liabilities 18,093 18,203 Other current liabilities 32,692 42,206 Total current liabilities 177,980 181,062 Long-term debt, net of unamortized debt issuance costs 315,030 315,397 Long-term operating lease liabilities 39,045 39,922 Other long-term liabilities 2,206 3,603 Deferred income taxes 7,927 7,516 Total long-term liabilities 364,208 366,438 Total liabilities 542,188 547,500 Commitments and contingencies ( Note 11 ) Shareholders' equity: Series A and B preferred stock, $ 1.00 par value each; 1,000,000 shares authorized each 16 16 Common stock, $ 0.01 par value, 100,000,000 shares authorized; 18,633,271 and 18,580,364 outstanding 195 195 Additional paid-in capital 207,510 206,772 Retained earnings 215,103 202,484 Accumulated other comprehensive loss ( 27,613 ) ( 29,282 ) Treasury stock, at cost 1,243,535 shares at March 31, 2022 ( 35,024 ) ( 33,511 ) Total DXP Enterprises, Inc. equity 360,187 346,674 Noncontrolling interest ( 60 ) 53 Total equity 360,127 346,727 Total liabilities and equity $ 902,315 $ 894,227 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 DXP ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Three Months Ended March 31, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net income 12,529 159 Reconciliation of net income to net cash provided (used in) by operating activities: Depreciation 2,517 2,480 Amortization of intangible assets 4,235 4,146 Gain on sale of property and equipment — ( 246 ) Provision for credit losses ( 147 ) ( 682 ) Fair value adjustment on contingent consideration 531 — Amortization of debt issuance costs 458 427 Restricted stock compensation expense 370 380 Deferred income taxes 411 580 Net change in operating assets and liabilities ( 18,224 ) 1,333 Net cash provided by operating activities $ 2,680 $ 8,577 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 740 ) ( 680 ) Proceeds from the sale of property and equipment — 1,297 Acquisition of business, net of cash acquired ( 5,316 ) — Net cash (used in) provided by investing activities $ ( 6,056 ) $ 617 CASH FLOWS FROM FINANCING ACTIVITIES: Principal debt payments ( 825 ) ( 825 ) Preferred Stock dividends paid ( 23 ) ( 23 ) Purchase of treasury stock ( 8,315 ) — Payment for employee taxes withheld from stock awards ( 159 ) ( 517 ) Net cash used in financing activities $ ( 9,322 ) $ ( 1,365 ) Effect of foreign currency on cash 268 204 Net change in cash and restricted cash ( 12,430 ) 8,033 Cash and restricted cash at beginning of period 49,080 119,419 Cash and restricted cash at end of period $ 36,650 $ 127,452 Supplemental schedule of non-cash investing and financing activities: Shares issued for acquisitions (Note 13) $ 527 $ — The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 DXP ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (in thousands) (unaudited) Series A preferred stock Series B preferred stock Common stock Paid-in capital Retained earnings Treasury stock Non controlling interest Accum other comp loss Total equity Balance at December 31, 2020 $ 1 $ 15 $ 189 $ 192,068 $ 186,078 $ — $ 798 $ ( 30,029 ) $ 349,120 Preferred dividends paid — — — — ( 23 ) — — — ( 23 ) Restricted stock compensation expense — — — 380 — — — — 380 Tax related items for share based awards — — — ( 517 ) — — — — ( 517 ) Currency translation adjustment — — — — — — — 1,491 1,491 Net income — — — — 371 — ( 212 ) — 159 Balance at March 31, 2021 $ 1 $ 15 $ 189 $ 191,931 $ 186,426 $ — $ 586 $ ( 28,538 ) $ 350,610 Series A preferred stock Series B preferred stock Common stock Paid-in capital Retained earnings Treasury stock Non controlling interest Accum other comp loss Total equity Balance at December 31, 2021 $ 1 $ 15 $ 195 $ 206,772 $ 202,484 $ ( 33,511 ) $ 53 $ ( 29,282 ) $ 346,727 Preferred dividends paid — — — — ( 23 ) — — — ( 23 ) Restricted stock compensation expense — — — 370 — — — — 370 Tax related items for share based awards — — — ( 159 ) — — — — ( 159 ) Issuance of shares of common stock — — — 527 — — — — 527 Currency translation adjustment — — — — — — — 1,669 1,669 Purchase of treasury stock — — — — — ( 1,513 ) — — ( 1,513 ) Net income — — — — 12,642 — ( 113 ) — 12,529 Balance at March 31, 2022 $ 1 $ 15 $ 195 $ 207,510 $ 215,103 $ ( 35,024 ) $ ( 60 ) $ ( 27,613 ) $ 360,127 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 6 DXP ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - THE COMPANY DXP Enterprises, Inc. together with its subsidiaries (collectively "DXP," "Company," "us," "we," or "our") was incorporated in Texas on July 26, 1996. DXP Enterprises, Inc. and its subsidiaries are engaged in the business of distributing maintenance, repair and operating ("MRO") products and service to a variety of end markets and industrial customers. Additionally, DXP provides integrated, custom pump skid packages, pump remanufacturing and manufactures branded private label pumps to energy and industrial customers. The Company is organized into three business segments: Service Centers ("SC"), Supply Chain Services ("SCS") and Innovative Pumping Solutions ("IPS"). See Note 12 - Segment Reporting for discussion of the business segments. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING AND BUSINESS POLICIES Basis of Presentation The Company's financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and its variable interest entity ("VIE"). The accompanying unaudited condensed consolidated financial statements have been prepared on substantially the same basis as our annual consolidated financial statements and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021. For a more complete discussion of our significant accounting policies and business practices, refer to the consolidated Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 5, 2022. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of results expected for the full fiscal year. In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the Company's condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2022 and March 31, 2021, condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, condensed consolidated statements of cash flows for the three months ended March 31, 2022 and March 31, 2021, and condensed consolidated statements of equity for the three months ended March 31, 2022 and March 31, 2021. All such adjustments represent normal recurring items. All inter-company accounts and transactions have been eliminated upon consolidation. NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS Accounting Pronouncements Not Yet Adopted In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . This update provides optional expedients and exceptions for applying generally accepted accounting principles to certain contract modifications and hedging relationships that reference London Inter-Bank Offered Rate (LIBOR) or another reference rate expected to be discontinued. The guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company evaluated the impact of this ASU and it does not expect a material impact on the Consolidated Financial Statements. In October 2021, the FASB issued Accounting Standards Update (ASU) 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , to address diversity in practice on how an acquirer should recognize and measure revenue contracts acquired in a business combination. ASU 2021-08 will require an acquirer to recognize and measure contract assets acquired and contract liabilities assumed in a business combination in accordance with FASB Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers . For the Company, ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The ASU should be applied prospectively to business combinations occurring on or after the effective date. Early adoption of ASU 2021-08 is permitted, including in an interim period. The Company expects the new Standard to have an impact for future acquisitions. From time to time the Company does acquire businesses that perform project-based work and therefore include Contract Assets and Liabilities. 7 All other new accounting pronouncements that have been issued, but not yet effective, are currently being evaluated and at this time are not expected to have a material impact on our financial position or results of operations. NOTE 4 - REVISION During the first quarter of 2022, we identified errors in the translation of the goodwill associated with our investment in our Canadian subsidiaries. We determined that we were not appropriately translating Canadian goodwill in consolidation since acquiring these businesses in 2012 and 2013. The failure to translate these balances resulted in an overstatement of US dollar-based goodwill for several years. We assessed the materiality of the errors on prior period financial statements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 99, Materiality , codified in Accounting Standards Codification (ASC) 250, Presentation of Financial Statements. We concluded that the errors were not material to our prior period consolidated financial statements and therefore, amendments of previously filed consolidated financial statements are not required. In accordance with ASC 250, we have corrected the errors by revising the consolidated financial statements presented herein. Prior periods not presented herein will be revised, as applicable, in future filings. The impacts of the revisions on the periods presented herein are provided in the following tables. Three Months Ended March 31, 2021 As previously Reported Adjustments Revised CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Currency translation adjustments $ 1,277 $ 214 $ 1,491 Total comprehensive income $ 1,436 $ 214 $ 1,650 As previously Reported Adjustments Revised BALANCE SHEET (AT DECEMBER 31, 2021): Goodwill $ 308,506 $ ( 11,965 ) $ 296,541 Total Assets $ 906,192 $ ( 11,965 ) $ 894,227 Cumulative Translation Adjustment $ ( 17,317 ) $ ( 11,965 ) $ ( 29,282 ) Equity $ 358,692 $ ( 11,965 ) $ 346,727 Total Liabilities & Equity $ 906,192 $ ( 11,965 ) $ 894,227 Accumulated Other Comprehensive Loss As previously Reported Adjustments Revised CONDENSED CONSOLIDATED STATEMENTS OF EQUITY Balance at December 31, 2020 $ ( 18,013 ) $ ( 12,016 ) $ ( 30,029 ) Currency translation adjustment $ 1,277 $ 214 $ 1,491 Balance at March 31, 2021 $ ( 16,736 ) $ ( 11,802 ) $ ( 28,538 ) Balance at December 31, 2021 $ ( 17,317 ) $ ( 11,965 ) $ ( 29,282 ) 8 NOTE 5 - FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES Authoritative guidance for financial assets and liabilities measured on a recurring basis applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis. Fair value, as defined in the authoritative guidance, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative guidance affects the fair value measurement of an investment with quoted market prices in an active market for identical instruments, which must be classified in one of the following categories: Level 1 inputs come from quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are other than quoted prices that are observable for an asset or liability. These inputs include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from, or corroborated by, observable market data by correlation or other means. Level 3 inputs are unobservable inputs for the asset or liability which require the Company's own assumptions. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. Our acquisitions may include contingent consideration as part of the purchase price. The fair value of the contingent consideration is estimated as of the acquisition date based on the present value of the contingent payments to be made using a weighted probability of possible payments. The unobservable inputs used in the determination of the fair value of the contingent consideration include managements assumptions about the likelihood of payment based on the established benchmarks and discount rates based on an internal rate of return analysis. The fair value measurement includes inputs that are Level 3 inputs as discussed above, as they are not observable in the market. Should actual results increase or decrease as compared to the assumptions used in our analysis, the fair value of the contingent consideration obligations will increase or decrease, up to the contracted limit, as applicable. Changes in the fair value of the contingent earn-out consideration are measured each reporting period and reflected in our results of operations. As of March 31, 2022, we recorded liabilities in other current and long-term liabilities for contingent consideration associated with the acquisition of PMI, Burlingame and Drydon of $ 1.4 million, $ 0.1 million and $ 2.6 million, respectively. See further discussion at Note 13 - Business Acquisitions . For the Company's assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3), the following table provides a reconciliation of the beginning and ending balances for each category therein, and gains or losses recognized during the three months ended March 31, 2022: Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Contingent Liability for Accrued Consideration (in thousands) Beginning balance at December 31, 2021 $ 905 Acquisitions and settlements Acquisitions (Note 1 3 ) 2,689 Settlements — Total remeasurement adjustments: Changes in fair value recorded in other (income) expense, net 531 *Ending Balance at March 31, 2022 $ 4,125 The amount of total (gains) or losses for the quarter included in earnings or changes to net assets, attributable to changes in unrealized losses relating to liabilities still held at March 31, 2022. $ 531 * Included in other current liabilities 9 Quantitative Information about Level 3 Fair Value Measurements The significant unobservable inputs used in the fair value measurement of the Company's contingent consideration liabilities designated as Level 3 are as follows: (in thousands, unaudited) Fair value at March 31, 2022 Valuation Technique Significant Unobservable Inputs Contingent consideration: (PMI, Burlingame and Drydon acquisitions) $ 4,125 Discounted cash flow Annualized EBITDA and probability of achievement Sensitivity to Changes in Significant Unobservable Inputs As presented in the table above, the significant unobservable inputs used in the fair value measurement of contingent consideration related to the acquisition of PMI, Burlingame and Drydon are annualized EBITDA forecasts developed by the Company's management and the probability of achievement of those EBITDA results. The discount rate used in the calculation was 7.6 %. Significant increases (decreases) in these unobservable inputs in isolation would result in a significantly (lower) higher fair value measurement. Other financial instruments not measured at fair value on the Company's unaudited condensed consolidated balance sheets at March 31, 2022 and December 31, 2021, but which require disclosure of their fair values include: cash, trade accounts receivable, trade accounts payable and accrued expenses, accrued payroll and related benefits, and the revolving line of credit and term loan debt under our syndicated credit agreement facility ( Note 9 ). Due to the short-term nature of these aforementioned securities, the Company believes that the estimated fair value of such instruments at March 31, 2022 and December 31, 2021 approximates their carrying value as reported on the unaudited condensed consolidated balance sheets. NOTE 6 – INVENTORIES The carrying values of inventories are as follows ( in thousands ): March 31, 2022 December 31, 2021 Finished goods $ 83,655 $ 80,329 Work in process 28,207 20,565 Inventories $ 111,862 $ 100,894 NOTE 7 – CONTRACT ASSETS AND LIABILITIES Under our customized pump production and long-term water and wastewater project contracts in our IPS segment, amounts are billed as work progresses in accordance with agreed-upon contractual terms, upon various measures of performance, including achievement of certain milestones, completion of specified units, or completion of a contract. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. Our contract assets are presented as “Cost and estimated profits in excess of billings” on our condensed consolidated balance sheets. However, we sometimes receive advances or deposits from our customers before revenue is recognized, resulting in contract liabilities that are presented as “Billings in excess of costs and estimated profits” on our unaudited condensed consolidated balance sheets. Costs and estimated profits on uncompleted contracts and related amounts billed were as follows ( in thousands ): March 31, 2022 December 31, 2021 Costs incurred on uncompleted contracts $ 54,888 $ 41,329 Estimated profits, thereon 21,594 17,143 Total 76,482 58,472 Less: billings to date 61,315 44,859 Net $ 15,167 $ 13,613 10 Such amounts were included in the accompanying unaudited condensed consolidated balance sheets for March 31, 2022 and December 31, 2021 under the following captions ( in thousands ): March 31, 2022 December 31, 2021 Costs and estimated profits in excess of billings $ 20,504 $ 17,193 Billings in excess of costs and estimated profits ( 5,328 ) ( 3,581 ) Translation adjustment ( 9 ) 1 Net $ 15,167 $ 13,613 During the three months ended March 31, 2022, $ 2 million of the balances that were previously classified as contract liabilities at the beginning of the period shipped. Contract assets and liability changes were primarily due to normal activity and timing differences between our performance and customer payments. NOTE 8 – INCOME TAXES Our effective tax rate from continuing operations was a tax expense of 21.0 percent for the three months ended March 31, 2022 compared to a tax expense of 90.9 percent for the three months ended March 31, 2021. Compared to the U.S. statutory rate for the three months ended March 31, 2022, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions recorded due to tax authorities’ auditing of research and development tax credits. The effective tax rate decreased by research and development tax credits and other tax credits. Compared to the U.S. statutory rate for the three months ended March 31, 2021, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions recorded due to tax authorities’ auditing of research and development tax credits. The effective tax rate decreased by research and development tax credits and other tax credits. To the extent penalties and interest would be assessed on any underpayment of income tax, such accrued amounts would be classified as a component of income tax provision (benefit) in the financial statements consistent with the Company’s policy. NOTE 9 – LONG-TERM DEBT The components of the Company's long-term debt consisted of the following ( in thousands ): March 31, 2022 December 31, 2021 Carrying Value (1) Fair Value Carrying Value (1) Fair Value ABL Revolver $ — $ — $ — $ — Term Loan B 325,875 325,060 326,700 325,883 Total long-term debt 325,875 325,060 326,700 325,883 Less: current portion ( 3,300 ) ( 3,292 ) ( 3,300 ) ( 3,292 ) Long-term debt less current maturities $ 322,575 $ 321,768 $ 323,400 $ 322,591 (1) Carrying value amounts do not include unamortized debt issuance costs of $ 7.5 million and $ 8.0 million for March 31, 2022 and December 31, 2021, respectively . Credit Agreements On March 17, 2020, the Company entered into an Increase Agreement (the "Increase Agreement") that provided for a $ 135.0 million asset-backed revolving line of credit (the "ABL Revolver"), a $ 50.0 million increase above the $ 85.0 million original revolver. The Increase Agreement amends and supplements that certain Loan and Security Agreement, dated as of August 29, 2017. As of March 31, 2022, the Company had no amount outstanding under the ABL Revolver and had $ 132.2 million of borrowing capacity, net of the impact of outstanding letters of credit. On December 23, 2020, DXP entered into a new seven year , $ 330 million Senior Secured Term Loan B (the “Term Loan B Agreement”), which replaced DXP’s previously existing Senior Secured Term Loan. The fair value measurements used by the Company are considered Level 2 inputs, as defined in the fair value hierarchy. The fair value estimates were based on quoted prices for identical or similar securities. 11 The Company was in compliance with all financial covenants under the ABL Revolver and Term Loan B Agreements as of March 31, 2022, and December 31, 2021. NOTE 10 - EARNINGS PER SHARE DATA Basic earnings per share is computed based on weighted average shares outstanding and excludes dilutive securities. Diluted earnings per share is computed including the impacts of all potentially dilutive securities. The following table sets forth the computation of basic and diluted earnings per share for the periods indicated ( in thousands, except per share data ): Three Months Ended March 31, 2022 2021 Basic: Weighted average shares outstanding 18,534 19,186 Net income attributable to DXP Enterprises, Inc. $ 12,642 $ 371 Convertible preferred stock dividend 23 23 Net income attributable to common shareholders $ 12,619 $ 348 Per share amount $ 0.68 $ 0.02 Diluted: Weighted average shares outstanding 18,534 19,186 Assumed conversion of convertible preferred stock 840 840 Total dilutive shares 19,374 20,026 Net income attributable to common shareholders $ 12,619 $ 348 Convertible preferred stock dividend 23 23 Net income attributable to DXP Enterprises, Inc. $ 12,642 $ 371 Per share amount $ 0.65 $ 0.02 NOTE 11 - COMMITMENTS AND CONTINGENCIES From time to time, the Company is a party to various legal proceedings arising in the ordinary course of business. While DXP is unable to predict the outcome or estimate the financial impact of these disputes, it believes that the ultimate resolution will not have, either individually or in the aggregate, a material adverse effect on DXP's consolidated financial position, cash flows, or results of operations. NOTE 12 - SEGMENT REPORTING The Company's reportable business segments are: Service Centers, Innovative Pumping Solutions and Supply Chain Services. The Service Centers segment is engaged in providing maintenance, repair and operating MRO products, equipment and integrated services, including logistics capabilities, to industrial customers. The Service Centers segment provides a wide range of MRO products in the rotating equipment, bearing, power transmission, hose, fluid power, metal working, industrial supply, safety products and safety services categories. The Innovative Pumping Solutions segment fabricates and assembles custom-made pump packages, re-manufactures pumps, manufactures branded private label pumps and provides products and process lines for the water and wastewater treatment industries. The Supply Chain Services segment provides a wide range of MRO products and manages all or part of a customer's supply chain, including warehouse and inventory management. The high degree of integration of the Company's operations necessitates the use of a substantial number of allocations and apportionments in the determination of business segment information. Sales are shown net of inter-segment eliminations. 12 The following table sets out financial information related to the Company's segments excluding amortization ( in thousands ): Three Months Ended March 31, 2022 2021 SC IPS SCS Total SC IPS SCS Total Product sales 1 $ 195,626 $ — $ 42,390 $ 238,016 $ 165,342 $ — $ 31,777 $ 197,119 Inventory services 2 — — 5,166 5,166 — — 4,196 4,196 Staffing services 3 23,171 — — 23,171 21,027 — — 21,027 Pump production and delivery 4 — 53,058 — 53,058 — 23,245 — 23,245 Total Revenue $ 218,797 $ 53,058 $ 47,556 $ 319,411 $ 186,369 $ 23,245 $ 35,973 $ 245,587 Income from operations 5 $ 27,351 $ 7,069 $ 4,020 $ 38,440 $ 22,137 $ 947 $ 2,323 $ 25,407 1 Product sales that are recognized at a point in time. 2 Inventory management services that are recognized over the contract life. 3 Staffing services that are invoiced on a day-rate basis. 4 Custom pump production and delivery is recognized over time. 5 Income from operations excludes amortization of intangibles and corporate expenses. The following table presents reconciliations of operating income for reportable segments to the consolidated income before taxes ( in thousands ): Three Months Ended March 31, 2022 2021 Operating income for reportable segments $ 38,440 $ 25,407 Adjustment for: Amortization of intangible assets 4,235 4,146 Corporate expenses 12,646 15,028 Income from operations $ 21,559 $ 6,233 Interest expense 5,162 5,243 Other (income) expense, net 536 ( 430 ) Income before income taxes $ 15,861 $ 1,420 13 NOTE 13 - BUSINESS ACQUISITIONS On March 1, 2022, the Company completed the acquisition of Drydon Equipment, Inc. (“Drydon”), a distributor and manufacturers’ representative of pumps, valves, controls and process equipment focused on serving the water and wastewater industry in the Midwest. The acquisition of Drydon was funded with cash on hand as well as issuing DXP's common stock. The Company paid approximately $ 7.9 million in cash and stock. A majority of Drydon's sales are project-based work under the percentage-of-completion accounting model. As a result, Drydon has been included in the IPS segment. For the three months ended March 31, 2022, Drydon contributed sales of $ 1.4 million and net income of $ 0.7 million. Goodwill for the transaction totaled approximately $ 4.1 million. On March 1, 2022, the Company completed the acquisition of certain assets of Burlingame Engineers, Inc. (“Burlingame”), a provider of water and wastewater equipment in the industrial and municipal sectors. The Company paid approximately $ 1.1 million in cash, stock and future consideration. For the three months ended March 31, 2022, Burlingame contributed sales of $ 0.4 million and net income of $ 6 thousand. Pro forma revenue and net income have been excluded as the amounts would have been immaterial to the consolidated results of the Company for the current and prior year. In aggregate, the acquisition-date fair value of the consideration transferred for the two businesses totaled $ 9.0 million, which consisted of the following: Purchase Price Consideration (in millions) Total Consideration Cash payments $ 5.8 Fair value of stock issued 0.5 Future consideration 2.7 Total purchase price consideration $ 9.0 The fair value of the 21,844 common shares issued was determined based on the closing market price of the Company’s common shares on the acquisition date, adjusted for holding restrictions following consummation. The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date: (In thousands) Cash $ 517 Accounts receivable 2,709 Other receivables 56 Inventory 37 Non-compete agreements 229 Customer relationships 1,770 Property and equipment 124 Other assets 2 Assets acquired $ 5,444 Current liabilities assumed ( 1,061 ) Net assets acquired $ 4,383 Total Consideration ( 9,049 ) Goodwill $ 4,666 Of the $ 2 million of acquired intangible assets, $ 0.2 million was provisionally assigned to non-compete agreements that are subject to amortization over 5 years, coincident with the terms of the agreements. In addition, $ 1.8 million was assigned to customer relationships, and will be amortized over a period of 8 years. The goodwill total of approximately $ 4.7 million is 14 attributable primarily to expected synergies and the assembled workforce of each entity and is generally deductible for tax purposes. The fair value of accounts receivables acquired is $ 2.7 million, which approximated book value. The Company recognized less than $ 300,000 of acquisition related costs that were expensed in the current period. These costs are included in the Condensed Consolidated Statements of Operations and Comprehensive Income in Selling, General and Administrative costs. The Company also recognized an immaterial amount in costs associated with issuing the shares issued as consideration in the business combination. Those costs were deducted from the recognized proceeds of issuance within stockholders’ equity. NOTE 14 - SHARE REPURCHASE 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 three months ended March 31, 2022, the Company repurchased 58.9 thousand shares of common stock for $ 1.5 million at an average price of $ 25.66 per share. Total consideration paid to repurchase the shares was recorded in shareholders’ equity as treasury shares. Such consideration was funded with existing cash balances and an agreement to pay sellers over four equal quarterly installments beginning on June 15, 2021. The remaining one installment totaling $ 6.8 million was included in other current liabilities as of March 31, 2022. Three Months Ended March 31, (in thousands, except per share data) 2022 Total number of shares purchased 58.9 Amount paid $ 1,511 Average price paid per share $ 25.66 NOTE 15 - SUBSEQUENT EVENT On May 3, 2022, the Company completed the acquisition of Cisco Air Systems, Inc. (“Cisco”). Cisco is a leading distributor of air compressors and related products and services focused on serving the food & beverage, transportation and general industrial markets in the Northern California and Nevada territories. Total consideration for the transaction was approximately $ 45 million, funded with a mixture of cash on hand of $ 29 million, DXP stock valued at approximately $ 5 million and a draw down of approximately $ 11 million on the ABL. 15