What changed in this filing

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Item 1. Financial Statements

2022-11-09 compared with 2022-08-09 · 110 added, 95 removed, 415 unchanged (33% of the section changed)

4 unchanged sentences

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

4 unchanged sentences

Income from operations 26,539 11,185 74,018 32,264

Other (income) expense 839 ( 105 ) 1,377 ( 535 )

Other expense (income) 1,565 ( 450 ) 2,941 ( 985 )

Interest expense 6,833 5,264 17,610 15,844

Income before income taxes 18,141 6,371 53,467 17,405

Provision for income taxes 4,973 1,684 8,305 2,945

Provision for income tax expense (benefit) 5,097 ( 565 ) 13,402 2,380

Net income 13,044 6,936 40,065 15,025

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

Net loss attributable to noncontrolling interest ( 885 ) ( 189 ) ( 938 ) ( 590 )

Net income attributable to DXP Enterprises, Inc.

16 unchanged sentences

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Current assets:

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Accumulated other comprehensive loss ( 32,360 ) ( 29,282 )

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

Treasury stock, at cost 1,602,256 and 1,184,648 shares

( 38,379 ) ( 33,511 )

9 unchanged sentences

(in thousands) (unaudited)

Six Months Ended June 30,

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

10 unchanged sentences

Deferred income taxes ( 3,009 ) 6,711

Net change in operating assets and liabilities ( 40,559 ) ( 7,201 )

Changes in Accounts receivables, net ( 59,563 ) ( 35,270 )

Net change in all other operating assets and liabilities ( 1,465 ) 14,437

Net cash provided by operating activities $ 2,256 $ 22,831

8 unchanged sentences

Principal debt payments ( 2,475 ) ( 2,475 )

Debt issuance costs ( 540 ) —

Payment for contingent consideration liability up to acquisition-date fair value ( 469 ) ( 955 )

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$ 5,757 $ 11,140

Share repurchase agreement $ — $ 20,405

Share repurchase agreement (Note 1 4 )

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

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

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

Restricted stock compensation expense — — — 458 — — — — 458

Stock compensation expense — — — 56 — — — — 56

Tax related items for share based awards — — — ( 51 ) — — — — ( 51 )

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

Issuance of shares of common stock — — 1 1,982 — — — — 1,983

Currency translation adjustment — — — — — — — ( 2,703 ) ( 2,703 )

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

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

Net income (loss) — — — — 7,125 — ( 189 ) — 6,936

Balance at September 30, 2021 $ 1 $ 15 $ 195 $ 206,007 $ 201,626 $ ( 29,174 ) $ 208 $ ( 29,552 ) $ 349,326

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

2 unchanged sentences

Restricted stock compensation expense — — — 1,298 — — — — 1,298

Stock compensation expense — — — 56 — — — — 56

Tax related items for share based awards — — — ( 637 ) — — — — ( 637 )

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

Issuance of shares of common stock — — 6 13,222 — — — — 13,228

Currency translation adjustment — — — — — — — 477 477

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

Net income (loss) — — — — 15,615 — ( 590 ) — 15,025

Balance at September 30, 2021 $ 1 $ 15 $ 195 $ 206,007 $ 201,626 $ ( 29,174 ) $ 208 $ ( 29,552 ) $ 349,326

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

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

Preferred dividends paid — — — — ( 23 ) — — — ( 23 )

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Purchase of treasury stock — — — — — ( 3,355 ) — — ( 3,355 )

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

Net income (loss) — — — — 13,929 — ( 885 ) — 13,044

Balance at September 30, 2022 $ 1 $ 15 $ 345 $ 213,455 $ 243,420 $ ( 38,379 ) $ ( 885 ) $ ( 32,360 ) $ 385,612

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

6 unchanged sentences

Purchase of treasury stock — — — — — ( 4,868 ) — — ( 4,868 )

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

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

Net income (loss) — — — — 41,003 — ( 938 ) — 40,065

Balance at September 30, 2022 $ 1 $ 15 $ 345 $ 213,455 $ 243,420 $ ( 38,379 ) $ ( 885 ) $ ( 32,360 ) $ 385,612

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

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

The results of operations for the nine months ended September 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.

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Accounting Pronouncements Not Yet Adopted

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.

In October 2021, the Financial Accounting Standards Board ("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 .

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The impacts of the revisions on the periods presented herein are provided in the following tables.

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

Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021

As previously As previously

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CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

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 )

Currency translation adjustment ( 2,129 ) ( 574 ) ( 2,703 )

Balance at September 30, 2021 $ ( 17,538 ) $ ( 12,014 ) $ ( 29,552 )

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

Currency translation adjustment 475 2 477

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

Balance at September 30, 2021 $ ( 17,538 ) $ ( 12,014 ) $ ( 29,552 )

NOTE 5 - FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

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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 unobservable inputs used in the determination of the fair value of the contingent consideration include management's assumptions about the likelihood of payment based on the established benchmarks, discount rates, and 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.

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

As of September 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.

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

("Cisco") and Sullivan Environmental Technologies, Inc.

("Sullivan") of $ 1.1 million, $ 0.5 million, $ 2.7 million, $ 4.6 million and $ 1.0 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 six months ended June 30, 2022:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

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Changes in fair value recorded in other (income) expense, net 2,125

*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

*Ending Balance at September 30, 2022 $ 9,980

Total losses included in earnings or changes to net assets, attributable to changes in unrealized losses relating to liabilities still held at September 30, 2022.

*Amounts included in other current liabilities was $ 5.4 million and $ 0.5 million for the periods ending September 30, 2022 and December 31, 2021, respectively.

Amounts included in long-term liabilities was $ 4.6 million and $ 0.4 million for the periods ending September 30, 2022 and December 31, 2021, respectively.

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 June 30, 2022 Valuation Technique Significant Unobservable

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

Contingent consideration:

(PMI,Burlingame,Drydon and Cisco acquisitions) $ 9,767 Discounted cash flow Annualized EBITDA and probability of achievement

(PMI, Burlingame, Drydon, Cisco and Sullivan acquisitions) $ 9,980 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, 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 June 30, 2022 and December 31, 2021, but which require disclosure of their fair values include:

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, Cisco and Sullivan 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 7.5 percent.

Changes in our unobservable inputs in isolation would result in a change to our fair value measurement.

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Finished goods $ 96,884 $ 80,329

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Costs and estimated profits on uncompleted contracts and related amounts billed were as follows ( in thousands ):

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Costs incurred on uncompleted contracts $ 71,838 $ 41,329

Estimated profits, thereon 23,324 17,143

Total 85,003 58,472

Total Costs and Estimated profits on uncompleted contracts 95,162 58,472

billings to date 69,283 44,859

Net $ 25,879 $ 13,613

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

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

September 30, 2022 December 31, 2021

Costs and estimated profits in excess of billings $ 30,122 $ 17,193

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Net $ 25,879 $ 13,613

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.

During the nine months ended September 30, 2022, $ 3.6 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.

1 unchanged sentence

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.

Our effective tax rate from continuing operations was a tax expense of 28.1 percent for the three months ended September 30, 2022 compared to a tax benefit of 8.9 percent for the three months ended September 30, 2021.

Compared to the U.S.

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.

statutory rate for the three months ended September 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 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.

statutory rate for the three months ended September 30, 2021,the effective tax rate was decreased by R&D credit and other credits and impacts resulting from the CARES Act and increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions for research and development tax credits.

Our effective tax rate from continuing operations was a tax expense of 25.1 percent for the nine months ended September 30, 2022 compared to a tax expense of 13.7 percent for the nine months ended September 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.

statutory rate for the nine months ended September 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.

statutory rate for the nine months ended September 30, 2021, the effective tax rate was decreased by research and development tax credits and other tax credits, NOL utilization, foreign tax credits, return to provision adjustments and was partially offset by state taxes, nondeductible expenses, and uncertain tax positions for research and development 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.

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Carrying Value (1)

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Long-term debt less current maturities $ 320,925 $ 304,879 $ 323,400 $ 322,591

(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 .

(1) Carrying value amounts do not include unamortized debt issuance costs of $ 7.2 million and $ 8.0 million for September 30, 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,

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.

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.

As of September 30, 2022, the Company had $ 40.6 million outstanding under the ABL Revolver included in current maturities and debt on our unaudited condensed consolidated balance sheets.

Total borrowing capacity under the ABL Revolver was $ 91.7 million, net of the impact of outstanding letters of credit.

On December 23, 2020, DXP entered into a 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.

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

The Company was in compliance with all financial covenants under the ABL Revolver and Term Loan B Agreements as of September 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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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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.

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

Three Months Ended June 30,

Three Months Ended September 30,

SC IPS SCS Total SC a

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$ 35,718 $ 7,327 $ 5,332 $ 48,377 $ 29,381 $ 277 $ 3,181 $ 32,839

Six Months Ended June 30,

Nine Months Ended September 30,

SC IPS SCS Total SC a

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53,162 — — 53,162 37,805 — — 37,805

Pump production 4

Pump production and delivery 4

— 169,890 — 169,890 — 96,411 — 96,411

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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.

a During the second quarter of 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.

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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

Income from operations for reportable segments $ 48,377 $ 32,839 $ 132,870 $ 92,837

Adjustment for:

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Interest expense 6,833 5,264 17,610 15,844

Other (income) expense, net 839 ( 105 ) 1,377 ( 535 )

Other expense (income), net 1,565 ( 450 ) 2,941 ( 985 )

Income before income taxes $ 18,141 $ 6,371 $ 53,467 $ 17,405

NOTE 13 - BUSINESS ACQUISITIONS

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

On September 1, 2022, the Company completed the acquisition of Sullivan Environmental Technologies, Inc.

Sullivan is a leading distributor for the municipal and industrial water and wastewater treatment industries in the states of Ohio, Kentucky, and Indiana.

Sullivan is included within our IPS business segment.

Total consideration for the transaction was approximately $ 6.5 million, funded with a mixture of cash on hand of $ 4.6 million, DXP stock valued at approximately $ 0.9 million and future consideration of $ 1.0 million.

For the nine months ended September 30, 2022, Sullivan contributed sales of $ 188 thousand and net income of $ 54 thousand.

Goodwill for the transaction totaled approximately $ 2.3 million.

On May 2, 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 and beverage, transportation and general industrial markets in the Northern California and Nevada territories.

Cisco is included within our SC business segment.

Total consideration for the transaction was approximately $ 52.3 million, funded with a mixture of cash on hand of $ 32 million, DXP stock valued at approximately $ 4.4 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.

For the nine months ended September 30, 2022, Cisco contributed sales of $ 20.6 million and net income of $ 4.4 million.

Goodwill for the transaction totaled approximately $ 30.4 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.

On March 1, 2022, the Company completed the acquisition of 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 and with an issuance of DXP's common 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 six months ended June 30, 2022, Drydon contributed sales of $ 2.7 million and net income of $ 0.7 million.

As a result, Drydon has been included in the IPS business segment.

For the nine months ended September 30, 2022, Drydon contributed sales of $ 4.0 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., 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, a provider of water and wastewater equipment in the industrial and municipal sectors.

Burlingame is included within our SC business segment.

The Company paid approximately $ 1.1 million in cash, stock and future consideration.

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

For the nine months ended September 30, 2022, Burlingame contributed sales of $ 2.1 million and net income of $ 400 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,

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

Nine Months Ended September 30,

(in thousands/unaudited)

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Net income $ 44,170 $ 19,492

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

In aggregate, the acquisition-date fair value of the consideration transferred for the four businesses totaled $ 67.9 million, which consisted of the following:

Purchase Price Consideration (in millions)

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The fair value of the 267,248 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) Cisco All Other Total

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

Cisco Recognized as of Acquisition Date (1)

Measurement Period Adjustments (2)

Cisco Recognized as of Acquisition Date (As Adjusted) All Other Total

Cash $ 4,352 $ — $ 4,352 $ 909 $ 5,261

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Goodwill $ 34,465 $ ( 4,069 ) $ 30,396 $ 7,816 $ 38,212

Of the $ 12.8 million of acquired intangible assets, $ 1.1 million was provisionally assigned to non-compete agreements that are subject to amortization over 5 years, coincident with the terms of the agreements.

(1) As previously reported in the Notes section in our Quarterly Report on Form 10-Q for the quarter end June 30, 2022.

(2) The measurement period adjustments primarily related to the final valuation of intangible assets related to the acquisition of Cisco.

Of the $ 19.4 million of acquired intangible assets, $ 1.4 million was provisionally assigned to non-compete agreements that are subject to amortization over 5 years, coinciding with the terms of the agreements.

In addition, $ 18.0 million was assigned to customer relationships, and will be amortized over a period of 8 years.

The goodwill total of approximately $ 38.2 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.

3 unchanged sentences

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 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.

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 worth or 1.5 million shares of its outstanding common stock may be acquired in the open market or through privately negotiated transactions over the next 24 months at the discretion of management.

During the nine months ended September 30, 2022, the Company repurchased 184 thousand shares of common stock in open market purchases for $ 4.9 million at an average price of $ 26.52 per share.

On June 15, 2021, the Company entered into a negotiated share repurchase agreement to repurchase shares from shareholders agreeing to pay sellers over four equal quarterly installments, which are presented within the purchase of treasury stock in the cash flow statement.

During the nine months ended September 30, 2022, there were two installment payments totaling $ 13.6 million.

There are no further installment payments outstanding as of September 30, 2022.

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 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,

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands, except per share data) 2022 2022

2 unchanged sentences

Average price paid per share $ 26.91 $ 26.52

NOTE 15 - SUBSEQUENT EVENT

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