What changed in this filing

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Item 1. Financial Statements

2022-08-09 compared with 2022-05-13 · 159 added, 82 removed, 351 unchanged (41% of the section changed)

4 unchanged sentences

(in thousands, except per share amounts) (unaudited)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Sales $ 367,812 $ 285,691 $ 687,223 $ 531,278

8 unchanged sentences

Net income 14,493 7,930 27,021 8,089

Net loss attributable to noncontrolling interest ( 113 ) ( 212 )

Net income (loss) attributable to noncontrolling interest 60 ( 189 ) ( 53 ) ( 401 )

Net income attributable to DXP Enterprises, Inc.

14,433 8,119 27,074 8,490

Preferred stock dividend 22 22 45 45

14 unchanged sentences

(in thousands, except share and per share data) (unaudited)

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Current assets:

6 unchanged sentences

Prepaid expenses and other current assets 13,645 9,522

Federal income taxes receivable 1,019 9,748

Income taxes receivable 316 9,748

Total current assets 453,285 404,574

7 unchanged sentences

Current liabilities:

Current maturities of long-term debt $ 3,300 $ 3,300

Current maturities of debt $ 32,424 $ 3,300

Trade accounts payable 103,641 77,842

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Other long-term liabilities 3,893 3,603

Deferred income taxes 7,927 7,516

Deferred income taxes liability 12,024 7,516

Total long-term liabilities 370,746 366,438

9 unchanged sentences

Accumulated other comprehensive loss ( 31,204 ) ( 29,282 )

Treasury stock, at cost 1,243,535 shares at March 31, 2022

Treasury stock, at cost 1,243,525 shares at June 30, 2022

( 35,024 ) ( 33,511 )

9 unchanged sentences

(in thousands) (unaudited)

Three Months Ended March 31,

Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income 27,021 8,089

Reconciliation of net income to net cash provided (used in) by operating activities:

Reconciliation of net income to net cash provided by operating activities:

Depreciation 5,006 5,132

2 unchanged sentences

Provision for credit losses 314 ( 637 )

Payment of contingent consideration liability in excess of acquisition-date fair value — ( 145 )

Fair value adjustment on contingent consideration 1,689 —

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Acquisition of business, net of cash acquired ( 44,117 ) ( 44,435 )

Net cash (used in) provided by investing activities $ ( 6,056 ) $ 617

Net cash used in investing activities $ ( 45,965 ) $ ( 44,664 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from revolving credit facilities 235,969 —

Payments on revolving credit facilities ( 206,845 ) —

Principal debt payments ( 1,650 ) ( 1,650 )

Payment for contingent consideration liability up to acquisition-date fair value — ( 955 )

Preferred Stock dividends paid ( 45 ) ( 45 )

1 unchanged sentence

Payment for employee taxes withheld from stock awards ( 290 ) ( 585 )

Net cash used in financing activities $ ( 9,322 ) $ ( 1,365 )

Net cash provided by (used in) financing activities $ 12,023 $ ( 12,004 )

Effect of foreign currency on cash ( 159 ) 303

4 unchanged sentences

Shares issued for acquisitions (Note 13)

$ 4,744 $ 8,859

Share repurchase agreement $ — $ 20,405

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4 unchanged sentences

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 March 31, 2021 $ 1 $ 15 $ 189 $ 191,931 $ 186,426 $ — $ 586 $ ( 28,538 ) $ 350,610

Preferred dividends paid — — — — ( 22 ) — — — ( 22 )

Restricted stock compensation expense — — — 460 — — — — 460

Tax related items for share based awards — — — ( 69 ) — — — — ( 69 )

Issuance of common stock — — 5 11,240 — — — — 11,245

Currency translation adjustment — — — — — — — 1,689 1,689

Purchase of treasury stock — — — — — ( 29,174 ) — — ( 29,174 )

Net income — — — — 8,119 — ( 189 ) — 7,930

Balance at June 30, 2021 $ 1 $ 15 $ 194 $ 203,562 $ 194,523 $ ( 29,174 ) $ 397 $ ( 26,849 ) $ 342,669

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

2 unchanged sentences

Tax related items for share based awards — — — ( 585 ) — — — — ( 585 )

Issuance of common stock — — 5 11,240 — — — — 11,245

Currency translation adjustment — — — — — — — 3,180 3,180

Purchase of treasury stock — — — — — ( 29,174 ) — — ( 29,174 )

Net income — — — — 8,490 — ( 401 ) — 8,089

Balance at June 30, 2021 $ 1 $ 15 $ 194 $ 203,562 $ 194,523 $ ( 29,174 ) $ 397 $ ( 26,849 ) $ 342,669

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 March 31, 2022 $ 1 $ 15 $ 195 $ 207,510 $ 215,103 $ ( 35,024 ) $ ( 60 ) $ ( 27,613 ) $ 360,127

Preferred dividends paid — — — — ( 22 ) — — — ( 22 )

Restricted stock compensation expense — — — 493 — — — — 493

Tax related items for share based awards — — — ( 131 ) — — — — ( 131 )

Issuance of shares of common stock — — 2 4,215 — — — — 4,217

Currency translation adjustment — — — — — — — ( 3,591 ) ( 3,591 )

Purchase of treasury stock — — — — — — — — —

Net income — — — — 14,433 — 60 — 14,493

Balance at June 30, 2022 $ 1 $ 15 $ 197 $ 212,087 $ 229,514 $ ( 35,024 ) $ — $ ( 31,204 ) $ 375,586

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

7 unchanged sentences

Net income — — — — 27,074 — ( 53 ) — 27,021

Balance at March 31, 2022 $ 1 $ 15 $ 195 $ 207,510 $ 215,103 $ ( 35,024 ) $ ( 60 ) $ ( 27,613 ) $ 360,127

Balance at June 30, 2022 $ 1 $ 15 $ 197 $ 212,087 $ 229,514 $ ( 35,024 ) $ — $ ( 31,204 ) $ 375,586

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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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.

and its subsidiaries are engaged in the business of distributing maintenance, repair and operating ("MRO") products and services 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.

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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 Company's financial statements are prepared in accordance with accounting principles generally accepted 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").

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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.

The results of operations for the six months ended June 30, 2022 are not necessarily indicative of results expected for the full fiscal year.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary for the fair statement of the Company's financial position, results of operations and cash flows for the interim periods presented.

All inter-company accounts and transactions have been eliminated upon consolidation.

NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

On April 1, 2022 we adopted Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, along with its subsequently issued guidance, which provides temporary optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met.

The provisions of this update are applicable to us through December 31, 2022.

The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.

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.

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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.

In accordance with ASC 250, we have corrected the errors by revising the unaudited condensed 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

Three Months Ended June 30, 2021 Six Months Ended June 30, 2021

As previously As previously

Reported Adjustments Revised Reported Adjustments Revised

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

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Total Assets $ 906,192 $ ( 11,965 ) $ 894,227

Cumulative Translation Adjustment $ ( 17,317 ) $ ( 11,965 ) $ ( 29,282 )

Equity $ 358,692 $ ( 11,965 ) $ 346,727

Accumulated other comprehensive loss $ ( 17,317 ) $ ( 11,965 ) $ ( 29,282 )

Total Equity $ 358,692 $ ( 11,965 ) $ 346,727

Total Liabilities & Equity $ 906,192 $ ( 11,965 ) $ 894,227

3 unchanged sentences

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 )

Currency translation adjustment 1,327 362 1,689

Balance at June 30, 2021 $ ( 15,409 ) $ ( 11,440 ) $ ( 26,849 )

Balance at December 31, 2020 $ ( 18,013 ) $ ( 12,016 ) $ ( 30,029 )

Currency translation adjustment 2,604 576 3,180

Balance at June 30, 2021 $ ( 15,409 ) $ ( 11,440 ) $ ( 26,849 )

NOTE 5 - FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

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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.

Level 3 inputs are unobservable inputs for an 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.

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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.

As of June 30, 2022, we recorded liabilities in other current and long-term liabilities for contingent consideration associated with the acquisitions of Process Machinery, Inc.

("PMI"), Burlingame Engineers, Inc.

("Burlingame"), Drydon Equipment, Inc.

("Drydon") and Cisco Air Systems, Inc.

("Cisco") of $ 2.4 million, $ 0.2 million, $ 2.7 million and $ 4.5 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)

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Changes in fair value recorded in other (income) expense, net 1,689

*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.

* Included in other current liabilities

*Ending Balance at June 30, 2022 $ 9,767

The amount of total losses included in earnings or changes to net assets, attributable to changes in unrealized losses relating to liabilities still held at June 30, 2022.

* Included in other current and long-term liabilities

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

(in thousands, unaudited) Fair value at June 30, 2022 Valuation Technique Significant Unobservable

Contingent consideration:

(PMI, Burlingame and Drydon acquisitions) $ 4,125 Discounted cash flow Annualized EBITDA and probability of achievement

(PMI,Burlingame,Drydon and Cisco acquisitions) $ 9,767 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.

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, Drydon and Cisco 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:

Other financial instruments not measured at fair value on the Company's unaudited condensed consolidated balance sheets at June 30, 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.

Due to the short-term nature of these aforementioned securities, the Company believes that the estimated fair value of such instruments at June 30, 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

June 30, 2022 December 31, 2021

Finished goods $ 88,307 $ 80,329

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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.

Our contract assets are presented as “Cost and estimated profits in excess of billings” on our unaudited 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

June 30, 2022 December 31, 2021

Costs incurred on uncompleted contracts $ 64,501 $ 41,329

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Net $ 23,581 $ 13,613

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

Such amounts were included in the accompanying unaudited condensed consolidated balance sheets for June 30, 2022 and December 31, 2021 under the following captions ( in thousands ):

June 30, 2022 December 31, 2021

Costs and estimated profits in excess of billings $ 25,655 $ 17,193

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Net $ 23,581 $ 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.

During the six months ended June 30, 2022, $ 3.5 million of the balances that were previously classified as contract liabilities at the beginning of the period were recognized in revenues.

Contract asset 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.

Income tax expense during interim periods is based on our estimated annual effective income tax rate plus any discrete items, which are recorded in the period in which they occur.

Our effective tax rate from continuing operations was a tax expense of 25.5 percent for the three months ended June 30, 2022 compared to a tax expense of 17.4 percent for the three months ended June 30, 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.

statutory rate for the three months ended June 30, 2022, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions recorded for research and development tax credits and was partially offset 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.

statutory rate for the three months ended June 30, 2021, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions for research and development tax credits and was partially offset by research and development tax credits and other tax credits.

Our effective tax rate from continuing operations was a tax expense of 23.5 percent for the six months ended June 30, 2022 compared to a tax expense of 26.7 percent for the six months ended June 30, 2021.

Compared to the U.S.

statutory rate for the six months ended June 30, 2022, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions recorded for research and development tax credits and was partially offset by research and development tax credits and other tax credits.

Compared to the U.S.

statutory rate for the six months ended June 30, 2021, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses and uncertain tax positions for research and development tax credits and was partially offset 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.

1 unchanged sentence

The components of the Company's long-term debt consisted of the following ( in thousands ):

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Carrying Value (1)

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Long-term debt less current maturities $ 321,750 $ 313,706 $ 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 .

(1) Carrying value amounts do not include unamortized debt issuance costs of $ 7.1 million and $ 8.0 million for June 30, 2022 and December 31, 2021, respectively .

Credit Agreements

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The Increase Agreement amends and supplements that certain Loan and Security Agreement, dated as of August 29,

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.

As of June 30, 2022, the Company had $ 29.1 million outstanding under the ABL Revolver and $ 103.0 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.

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The fair value estimates were based on quoted prices for identical or similar securities.

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.

The Company was in compliance with all financial covenants under the ABL Revolver and Term Loan B Agreements as of June 30, 2022.

NOTE 10 - EARNINGS PER SHARE DATA

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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,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Weighted average shares outstanding 18,766 19,291 18,651 19,239

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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 is engaged in providing 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.

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The following table sets out financial information related to the Company's segments excluding amortization ( in thousands ):

Three Months Ended March 31,

SC IPS SCS Total SC IPS SCS Total

Three Months Ended June 30,

SC IPS SCS Total SC a

IPS SCS Total

Product sales 1

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$ 32,368 $ 8,726 $ 4,958 $ 46,052 $ 26,300 $ 4,803 $ 3,488 $ 34,591

Six Months Ended June 30,

SC IPS SCS Total SC a

IPS SCS Total

Product sales 1

$ 438,220 $ — $ 95,365 $ 533,585 $ 371,685 $ — $ 66,845 $ 438,530

Inventory services 2

— — 11,118 11,118 — — 8,459 $ 8,459

Staffing services 3

31,674 — — 31,674 24,317 — — $ 24,317

Pump production 4

— 110,846 — 110,846 — 59,972 — $ 59,972

Total Revenue $ 469,894 $ 110,846 $ 106,483 $ 687,223 $ 396,002 $ 59,972 $ 75,304 $ 531,278

Income from operations 5

$ 59,719 $ 15,795 $ 8,978 $ 84,492 $ 48,437 $ 5,751 $ 5,810 $ 59,998

1 Product sales that are recognized at a point in time.

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5 Income from operations excludes amortization of intangibles and corporate expenses.

a During Q2 2022, we identified an error related to service revenue which resulted in a reclassification between product sales and service revenue.

We assessed the materiality of the error 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 error was 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 error by revising the consolidated financial statements presented herein.

Prior periods not presented herein will be revised, as applicable, in future filings.

The following table presents reconciliations of operating income for reportable segments to the consolidated income before taxes ( in thousands ):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Operating income for reportable segments $ 46,052 $ 34,591 $ 84,492 $ 59,998

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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.

On May 2, 2022, the Company completed the acquisition of Cisco.

Cisco is a leading distributor of air compressors and related products and services focused on serving the food and beverage, transportation and general industrial markets in the Northern California and Nevada territories.

Total consideration for the transaction was approximately $ 52.2 million, funded with a mixture of cash on hand of $ 32 million, DXP stock valued at approximately $ 4 million and a draw down of approximately $ 11 million on the ABL and future consideration of $ 4.5 million.

For the six months ended June 30, 2022, Cisco contributed sales of $ 8.2 million and net income of $ 1.6 million.

Goodwill for the transaction totaled approximately $ 34.5 million.

On March 1, 2022, the Company completed the acquisition of Drydon Equipment, Inc., 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.

The Company paid approximately $ 7.9 million in cash, stock and future consideration.

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.

For the six months ended June 30, 2022, Drydon contributed sales of $ 2.7 million and net income of $ 0.7 million.

Goodwill for the transaction totaled approximately $ 4.9 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.

On March 1, 2022, the Company completed the acquisition of certain assets of Burlingame Engineers, Inc., 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:

For the six months ended June 30, 2022, Burlingame contributed sales of $ 0.9 million and net income of $ 70 thousand.

Goodwill for the transaction totaled approximately $ 0.6 million.

The following represents the pro forma unaudited revenue and earnings as if Cisco, Drydon and Burlingame had been included in the consolidated results of the Company for the six months ended June 30, 2022 and 2021, respectively:

Six Months Ended June 30,

(in thousands/unaudited)

Revenue $ 703,040 $ 555,052

Net income $ 29,286 $ 11,302

In aggregate, the acquisition-date fair value of the consideration transferred for the three businesses totaled $ 61.2 million, which consisted of the following:

Purchase Price Consideration (in millions)

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The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date:

(In thousands)

(In thousands) Cisco All Other Total

Cash $ 4,352 $ 517 $ 4,869

Accounts receivable 5,173 2,698 7,871

Other receivables — 56 56

Inventory 3,032 37 3,069

Other current assets 472 — 472

Non-compete agreements 878 229 1,107

1 unchanged sentence

Property and equipment 1,187 124 1,311

Operating lease ROU asset 2,168 — 2,168

Other assets — 2 2

Assets acquired $ 27,992 $ 4,627 $ 32,619

Short-term operating lease liability ( 463 ) — ( 463 )

Current liabilities assumed ( 5,208 ) ( 1,061 ) ( 6,269 )

Long-term operating lease liability ( 1,705 ) — ( 1,705 )

Deferred tax liability ( 2,897 ) — ( 2,897 )

Net assets acquired $ 17,719 $ 3,566 $ 21,285

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In addition, $ 11.7 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

attributable primarily to expected synergies and the assembled workforce of each entity and is generally deductible for tax purposes.

The goodwill total of approximately $ 39.9 million is attributable primarily to expected synergies and the assembled workforce of each entity and is generally not deductible for tax purposes.

The fair value of accounts receivables acquired is $ 7.9 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.

These costs are included in the Unaudited 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.

2 unchanged sentences

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.

During the six months ended June 30, 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,

Such consideration was funded with existing cash balances and an agreement to pay sellers over four equal quarterly installments beginning on June 15, 2021 which are presented within the purchase of treasury stock in the cash flow statement.

There are no installment payments outstanding.

Three Months Ended June 30, Six Months Ended June 30,

(in thousands, except per share data) 2022 2022

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NOTE 15 - SUBSEQUENT EVENT

On May 3, 2022, the Company completed the acquisition of Cisco Air Systems, Inc.

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.

On July 19, 2022 the Company entered into an Amended and Restated Loan and Security Agreement (the “ABL Credit Agreement”) that provided for a $ 135.0 million asset-backed revolving line of credit (the "ABL Revolver").

The ABL Credit Agreement amends and restates the Loan and Security Agreement dated as of August 29, 2017.

Subject to the conditions set forth in the ABL Credit Agreement, the ABL Revolver may be increased by up to an aggregate of $ 50.0 million, in minimum increments of $ 10.0 million.

The ABL Revolver matures on July 19, 2027.

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 1. Financial Statements