What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-09 compared with 2022-08-09 · 109 added, 84 removed, 177 unchanged (52% of the section changed)

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

together with its subsidiaries (collectively "DXP," "Company," "us," "we," or "our") for the six months ended June 30, 2022 should be read in conjunction with our previous Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q, and the consolidated financial statements and notes thereto included in such reports.

together with its subsidiaries (collectively "DXP," "Company," "us," "we," or "our") for the three and nine months ended September 30, 2022 should be read in conjunction with our previous Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q, and the consolidated financial statements and notes thereto included in such reports.

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

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Any such forward-looking statements are not guarantees of future performance and may involve significant risks and uncertainties, and actual results may vary materially from those discussed in the forward-looking statements or historical performance as a result of various factors.

These factors include the effectiveness of management's strategies and decisions, our ability to implement our internal growth and acquisition growth strategies, general economic and business conditions specific to our primary customers, changes in government regulations, our ability to effectively integrate businesses we may acquire, new or modified statutory or regulatory requirements, availability of materials and labor, inability to obtain or delay in obtaining government or third-party approvals and permits, non-performance by third parties of their contractual obligations, unforeseen hazards such as weather conditions, acts of war or terrorist acts and the governmental or military response thereto, cyber-attacks adversely affecting our operations, other geological, operating and economic considerations and declining prices and market conditions, including reduced oil and gas prices and supply or demand for maintenance, repair and operating products, equipment and service, decreases in oil and natural gas industry capital expenditure levels, which may result from decreased oil and natural gas prices or other factors, economic risks related to the long-term impact of COVID-19, our ability to manage changes and the continued health or availability of management personnel, and our ability to obtain financing on favorable terms or amend our credit facilities, as needed.

These factors include, but are not limited to, the effectiveness of management's strategies and decisions;

our ability to implement our internal growth and acquisition growth strategies;

general economic and business conditions specific to our primary customers;

changes in government regulations;

our ability to effectively integrate businesses we may acquire;

new or modified statutory or regulatory requirements;

availability of materials and labor;

inability to obtain or delay in obtaining government or third-party approvals and permits;

non-performance by third parties of their contractual obligations;

unforeseen hazards such as weather conditions, acts of war or terrorist acts and the governmental or military response thereto;

cyber-attacks adversely affecting our operations;

other geological, operating and economic considerations and declining prices and market conditions, including reduced oil and gas prices and supply or demand for maintenance, repair and operating products, equipment and service;

decreases in oil and natural gas industry capital expenditure levels, which may result from decreased oil and natural gas prices or other factors;

economic risks related to the long-term impact of COVID-19;

our ability to manage changes and the continued health or availability of management personnel;

and our ability to obtain financing on favorable terms or amend our credit facilities, as needed.

This Report identifies other factors that could cause such differences.

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Additionally, we fabricate, remanufacture and assemble custom pump packages along with manufacturing branded private label pumps.

Inflation Reduction Act

In August 2022, the Inflation Reduction Act of 2022 (IRA) was signed into United States (U.S.) law.

Under the IRA, there is a new 15% corporate minimum tax and a new 1% excise tax on stock repurchases, effective after December 31, 2022.

In addition, the IRA contains provisions relating to climate change, energy and health care.

Based on the Company''s current analysis of the provisions, the Company does not anticipate a material impact to the consolidated financial statements.

Ukrainian - Russia Conflict

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The global commodity and labor markets experienced significant inflationary pressures attributable to economic recovery and supply chain issues tightening caused by the COVID-19 pandemic and the Ukrainian-Russia conflict mentioned above.

inflationary trends increased the cost of many of the products we buy.

As a distributor, we often remain neutral to inflation as those costs are generally passed onto customers.

The Company was able to pass price increases onto customers and implement other strategies designed to mitigate some of the adverse effects of higher costs during the six months ended June 30, 2022.

These inflationary trends increased the cost of many of the products we buy.

As a distributor, we often remain neutral to inflation as those costs are generally passed on to customers.

The Company was able to pass price increases on to customers and implement other strategies designed to mitigate some of the adverse effects of higher costs during the nine months ended September 30, 2022.

COVID-19 Pandemic Impact

The COVID-19 pandemic began in the first quarter of 2020 and continued throughout the six months ended June 30, 2022, causing disruptions in the U.S.

The COVID-19 pandemic began in the first quarter of 2020 and continued throughout the nine months ended September 30, 2022, causing disruptions in the U.S.

and global markets.

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Matters Affecting Comparability

There were 127 business days in the six months ended June 30, 2022 and 126 business days in the six months ended June 30, 2021.

There were 191 business days in the nine months ended September 30, 2022 and 190 business days in the nine months ended September 30, 2021.

Service Centers and Supply Chain Services Segments

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The Company's recent order activity improved as markets strengthened.

For the six months ended June 30, 2022, we had approximately $576.4 million in sales in our Service Centers and Supply Chain Services segment, an increase of approximately 22.3 percent over the six months ended June 30, 2021.

For the nine months ended September 30, 2022, we had approximately $904.6 million in sales in our Service Centers and Supply Chain Services segment, an increase of approximately 24.9 percent over the nine months ended September 30, 2021.

We expect financial results to continually improve with interim periods of potential setback should new COVID-19 variants arise or other economic headwinds prevail.

Innovative Pumping Solutions Segment

For the six months ended June 30, 2022, we had approximately $110.8 million in sales in our Innovative Pumping Solutions segment, an increase of approximately $50.9 million over the six months ended June 30, 2021, of which $18.0 million was associated with recent acquisitions in the water and wastewater markets.

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

For the nine months ended September 30, 2022, we had approximately $169.9 million in sales in our Innovative Pumping Solutions segment, an increase of approximately $73.5 million over the nine months ended September 30, 2021, of which $8.2 million was associated with recent acquisitions in the water and wastewater markets.

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

The increasing optimism related to oil and gas demand recovery led to higher commodity prices.

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The SCS segment provides a wide range of MRO products and manages all or part of our customer's supply chain function, and inventory management.

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

Three Months Ended June 30,

The IPS segment provides products and services to the water and wastewater market as well as fabricates and assembles integrated pump system packages custom made to customer specifications, remanufactures pumps and manufactures branded private label pumps.

Three Months Ended September 30,

2022 % 2021 %

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Income from operations $ 26,539 6.9 % $ 11,185 3.9 %

Other (income) expense, net 839 0.2 % (105) — %

Other expense (income), net 1,565 0.4 % (450) (0.2) %

Interest expense 6,833 1.8 % 5,264 1.8 %

Income before income taxes $ 18,141 4.7 % $ 6,371 2.2 %

Provision for income taxes 4,973 1.4 % 1,684 0.6 %

Provision for income tax expense (benefit) 5,097 1.3 % (565) (0.2) %

Net income $ 13,044 3.4 % $ 6,936 2.4 %

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Diluted earnings per share 0.71 $ 0.36

Three Months Ended June 30, 2022 compared to Three Months Ended June 30, 2021

Sales for the three months ended June 30, 2022 increased $82.1 million, or 28.7 percent, to approximately $367.8 million from $285.7 million for the prior year's corresponding period.

Sales from businesses acquired for three months ended June 30, 2022, accounted for $21.3 million of the sales for the three months ended June 30, 2022.

Three Months Ended September 30, 2022 compared to Three Months Ended September 30, 2021

Sales for the three months ended September 30, 2022 increased $97.8 million, or 33.8 percent, to approximately $387.3 million from $289.5 million for the prior year's corresponding period.

Sales from businesses acquired for three months ended September 30, 2022, accounted for $15.9 million of the sales.

This overall sales increase is the result of an increase in sales in our SC, IPS and SCS segments of $47.5 million, $22.6 million and $27.7 million, respectively.

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

Three Months Ended June 30,

Three Months Ended September 30,

2022 2021 Change Change%

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Service Centers segment.

Sales for the SC segment increased by approximately $41.5 million, or 19.8 percent for the three months ended June 30, 2022 compared to the prior year's corresponding period.

Sales for the SC segment increased by approximately $47.5 million, or 22.4 percent, for the three months ended September 30, 2022, compared to the prior year's corresponding period.

Excluding $13.6 million of Service Centers segment sales associated with recent acquisitions, sales increased $33.9 million from the prior year's corresponding period.

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Innovative Pumping Solutions segment .

Sales for the IPS segment increased by $21.1 million, or 57.3 percent, for the three months ended June 30, 2022 compared to the prior year's corresponding period.

Sales for the IPS segment increased by $22.6 million, or 62.0 percent, for the three months ended September 30, 2022, compared to the prior year's corresponding period.

Excluding $2.3 million of IPS segment sales from recent acquisitions, IPS segment sales increased $20.3 million from the prior year's corresponding period.

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Supply Chain Services segment.

Sales for the SCS segment increased by $19.6 million, or 49.8 percent, for the three months ended June 30, 2022, compared to the prior year's corresponding period.

Sales for the SCS segment increased by $27.7 million, or 68.3 percent, for the three months ended September 30, 2022, compared to the prior year's corresponding period.

The improved sales are primarily related to the addition of a new customer in the diversified chemicals market, as well as sales increases in the medical technology, food and beverage and oil and gas markets.

GROSS PROFIT.

Gross profit as a percentage of sales for the three months ended June 30, 2022 was 28.3 percent versus 29.8 percent in the prior year's corresponding period.

Gross profit as a percentage of sales for the three months ended September 30, 2022 was 28.8 percent versus 30.0 percent in the prior year's corresponding period.

Excluding the impact of the businesses acquired, gross profit as a percentage of sales was 27.8 percent.

The decrease in the gross profit percentage excluding the businesses acquired is primarily the result of a decrease within our SCS segment.

The decrease in the gross profit percentage excluding the businesses acquired is primarily the result of a decrease in gross profit within our SCS segment.

Service Centers segment.

As a percentage of sales, the second quarter gross profit percentage for the SC segment decreased approximately 48 basis points.

As a percentage of sales, for the three months ended September 30, 2022 gross profit percentage for the SC segment decreased approximately 111 basis points.

Adjusting for the businesses acquired, gross profit as a percentage of sales decreased approximately 169 basis points from the prior year's corresponding period.

This was primarily as a result of product mix.

Gross profit for the SC segment, excluding businesses acquired, increased $7.2 million, or 11.1 percent, during the three months ended June 30, 2022 compared to the prior year’s corresponding period.

This was primarily the result of product mix.

Gross profit for the SC segment, excluding businesses acquired, increased $6.6 million, or 9.8 percent, during the three months ended September 30, 2022 compared to the prior year’s corresponding period

Innovative Pumping Solutions segment.

As a percentage of sales, the second quarter gross profit percentage for the IPS segment increased approximately 9 basis points.

Adjusting for the businesses acquired, gross profit as a percentage of sales decreased approximately 50 basis points from the prior year's corresponding period.

The aforementioned decrease in gross profit percentage as a percentage of sales is primarily due to a mix shift (lower margin oil and gas work versus domestic water and wastewater projects).

Gross profit dollars increased $3.4 million compared to the prior year corresponding period, excluding business acquired, primarily as a result of an increase in project work as a result of an increase in capital spending by our customers.

As a percentage of sales, for the three months ended September 30, 2022 gross profit percentage for the IPS segment increased approximately 484 basis points.

Adjusting for the businesses acquired, gross profit as a percentage of sales increased approximately 129 basis points from the prior year's corresponding period.

The aforementioned increase in gross profit percentage as a percentage of sales is primarily due to the addition of higher water and wastewater projects versus lower margin oil and gas work and gross margin improvements within oil and gas during the third quarter of 2022.

Gross profit increased $6.0 million compared to the prior year corresponding period, excluding business acquired, primarily as a result of an increase in project work as a result of an increase in capital spending by our customers.

Supply Chain Services segment.

Gross profit as a percentage of sales for the SCS segment decreased approximately 635 basis points compared to the prior year's corresponding period.

Gross profit for the second quarter of 2022 increased $1.0 million or 10.8% compared to the prior year's corresponding period.

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

Selling, general and administrative expense for the three months ended June 30, 2022 increased by approximately $7.9 million, or 11.2%, to $78.3 million from $70.4 million for the prior year's corresponding period.

Selling, general and administrative expense from businesses acquired accounted for $4.0 million.

Excluding expenses from businesses acquired, SG&A for the quarter increased by $3.9 million, or 5.5%.

As a percentage of sales, for the three months ended September 30, 2022 the SCS segment decreased approximately 441 basis points compared to the prior year's corresponding period.

Gross profit dollars for the third quarter of 2022 increased $3.7 million, or 37.5 percent, compared to the prior year's corresponding period primarily due to the addition of a new customer in the diversified chemicals market.

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

SG&A for the three months ended September 30, 2022 increased by approximately $9.3 million, or 12.3 percent, to $85.1 million from $75.8 million for the prior year's corresponding period.

SG&A from businesses acquired accounted for $4.5 million.

Excluding expenses from businesses acquired, SG&A for the quarter increased by $4.8 million, or 6.4 percent.

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

OPERATING INCOME.

Operating income for the second quarter of 2022 increased by $11.1 million to $25.9 million, from $14.8 million in the prior year's corresponding period.

This increase in operating income is primarily related to the aforementioned increased business activity across all segments.

Operating income for the third quarter of 2022 increased by $15.4 million to $26.5 million, from $11.2 million in the prior year's corresponding period.

This increase in operating income is related to the aforementioned increased business activity across all segments and reduction in SG&A expense as a percentage of sales in the current period versus the prior years corresponding period .

INTEREST EXPENSE.

Interest expense for the second quarter of 2022 remained materially consistent with an increase of $0.3 million compared with the prior year's corresponding period.

Interest expense for the third quarter of 2022 increased $1.6 million compared with the prior year's corresponding period primarily due to borrowings on the ABL Revolver in addition to the borrowings under the Term Loan B for the three months ended September 30, 2022.

INCOME TAXES.

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 recorded for research and development tax credits and partially offset by research and development tax credits and other tax credits.

Six Months Ended June 30,

statutory rate for the three months ended September 30, 2021, the effective tax rate was 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.

Nine Months Ended September 30,

2022 % 2021 %

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Diluted earnings per share $ 2.10 $ 0.78

Six Months Ended June 30, 2022 compared to Six Months Ended June 30, 2021

Sales for the six months ended June 30, 2022 increased $155.9 million, or 29.4 percent, to approximately $687.2 million from $531.3 million for the prior year's corresponding period.

Sales from businesses acquired accounted for $34.5 million of the sales for the six months ended June 30, 2022.

Nine Months Ended September 30, 2022 compared to Nine Months Ended September 30, 2021

Sales for the nine months ended September 30, 2022 increased $253.8 million, or 30.9 percent, to approximately $1,074.5 million from $820.8 million for the prior year's corresponding period.

Sales from businesses acquired accounted for $38.3 million of the sales for the nine months ended September 30, 2022.

This sales increase is the result of an increase in sales in our SC, IPS and SCS segments of $121.4 million, $73.5 million and $58.9 million, respectively.

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

Six Months Ended June 30,

Nine Months Ended September 30,

2022 2021 Change Change%

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Service Centers segment.

Sales for the SC segment increased by $73.9 million, or 18.7 percent for the six months ended June 30, 2022 compared to the prior year's corresponding period.

Excluding $16.5 million of Service Center segment sales for the six months ended June 30, 2022 from businesses acquired, SC segment sales increased $57.4 million, or 14.5 percent from the prior year's corresponding period.

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

Sales for the SC segment increased by $121.4 million, or 20.0 percent for the nine months ended September 30, 2022, compared to the prior year's corresponding period.

Excluding $30.1 million of Service Center segment sales for the nine months ended September 30, 2022 from businesses acquired, SC segment sales increased $91.3 million, or 15.0 percent, from the prior year's corresponding period.

This sales increase is primarily the result of increased sales of metal working products, safety services and bearings product lines to customers engaged in operating and maintenance services in the general industrial, diversified chemical, and oil & gas markets in connection with increased capital spending by oil and gas producers.

Innovative Pumping Solutions segment .

Sales for the IPS segment increased by $50.9 million, or 84.8 percent for the six months ended June 30, 2022 compared to the prior year's corresponding period.

Excluding $18.0 million of IPS segment sales for the six months ended June 30, 2022 from businesses acquired, IPS segment sales increased $32.9 million, or 54.9 percent from the prior year's corresponding period.

Sales for the IPS segment increased by $73.5 million, or 76.2 percent for the nine months ended September 30, 2022 compared to the prior year's corresponding period.

Excluding $8.2 million of IPS segment sales for the nine months ended September 30, 2022 from businesses acquired, IPS segment sales increased $65.3 million, or 67.7 percent from the prior year's corresponding period.

This increase was primarily the result of an increase in the capital spending by oil and gas producers and related businesses.

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Supply Chain Services segment.

Sales for the SCS segment increased by $31.2 million, or 41.4 percent, for the six months ended June 30, 2022, compared to the prior year's corresponding period.

The improved sales are primarily related to increased sales to customers in the food and beverage, general manufacturing and aerospace industries as pandemic restrictions subsided and the economy rebounded.

Sales for the SCS segment increased by $58.9 million, or 50.8 percent, for the nine months ended September 30, 2022, compared to the prior year's corresponding period.

GROSS PROFIT.

Gross profit as a percentage of sales for the six months ended June 30, 2022 decreased by approximately 56 basis points from the prior year's corresponding period.

Gross profit as a percentage of sales for the nine months ended September 30, 2022 decreased by approximately 79 basis points from the prior year's corresponding period.

Excluding the impact of the businesses acquired, gross profit as a percentage of sales decreased by approximately 167 basis points.

The decrease in the gross profit percentage is primarily the result of an approximate 311 basis point and 288 basis point decrease in the gross profit percentage in our SC and IPS segments partially offset by a 24 basis point increase in the gross profit percentage in our SC segment, excluding businesses acquired.

The decrease in the gross profit percentage is primarily the result of an approximate 43 basis points, 343 basis points and 360 basis points decrease in the gross profit percentage in our SC, IPS and SCS segments, respectively, excluding businesses acquired.

Service Centers segment.

As a percentage of sales, the six months ended June 30, 2022 gross profit percentage for the Service Centers increased approximately 34 basis points from the prior year's corresponding period.

As a percentage of sales, for the nine months ended September 30, 2022 gross profit percentage for the Service Centers decreased approximately 16 basis points from the prior year's corresponding period.

Adjusting for the businesses acquired, gross profit as a percentage of sales decreased approximately 43 basis points from the prior year's corresponding period.

This was primarily as a result of product mix.

Gross profit for the SC segment, excluding businesses acquired, increased $25.1 million, or 13.4 percent, during the nine months ended September 30, 2022 compared to the prior year’s corresponding period.

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

Innovative Pumping Solutions segment.

As a percentage of sales, the six months ended June 30, 2022 gross profit percentage for the IPS segment decreased approximately 185 basis points from the prior year's corresponding period.

The decrease in gross profit percentage as a percentage of sales is primarily due to a mix shift (lower margin oil & gas work versus domestic water and wastewater projects).

Gross profit dollars increased $14.2 million, primarily as a result of an increase in the capital spending by oil and gas producers and related businesses.

As a percentage of sales, the nine months ended September 30, 2022 gross profit percentage for the IPS segment increased approximately 65 basis points from the prior year's corresponding period.

Adjusting for the businesses acquired, gross profit as a percentage of sales decreased approximately 343 basis points from the prior year's corresponding period.

The decrease in gross profit percentage as a percentage of sales is primarily due to a mix shift (lower margin oil and gas work versus domestic water and wastewater projects).

Gross profit dollars increased $22.9 million, primarily as a result of an increase in the capital spending by oil and gas producers and related businesses and the positive impact of the businesses acquired.

Supply Chain Services segment.

Gross profit as a percentage of sales decreased approximately 311 basis points, compared to the prior year's corresponding period.

Gross profit for the six months ended June 30, 2022 increased $4.1 million or 22.9 percent compared to the prior year's corresponding period.

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

Selling, general and administrative expense for the six months ended June 30, 2022 increased by approximately $15.8 million, or 11.7 percent, to $151.7 million from $135.8 million for the prior year's corresponding period.

Selling, general and administrative expense from businesses acquired accounted for $6.3 million.

Excluding expenses from businesses acquired, SG&A for the six months ended June 30, 2022 increased by $9.6 million, or 7.1 percent.

Gross profit dollars for the nine months ended September 30, 2022 increased $7.8 million or, 28.0 percent, compared to the prior year's corresponding period due to the addition of a new customer during the current year.

As a percentage of sales, or gross margins, for the nine months ended September 30, 2022 decreased approximately 360 basis points, compared to the prior year's corresponding period, due to the addition of the same customer and the profitability of this contract.

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

SG&A for the nine months ended September 30, 2022 increased by approximately $25.2 million, or 11.9 percent, to $236.8 million from $211.6 million for the prior year's corresponding period.

SG&A from businesses acquired was $10.8 million.

Excluding expenses from businesses acquired, SG&A for the nine months ended September 30, 2022 increased by $14.4 million, or 6.8 percent.

OPERATING INCOME.

Operating income for the six months ended June 30, 2022 increased by $26.4 million or 125.2% to $47.5 million from $21.1 million in the prior year's corresponding period.

Operating income for the nine months ended September 30, 2022 increased by $41.8 million or 129.4% to $74.0 million from $32.3 million in the prior year's corresponding period.

This increase in operating income is primarily related to the aforementioned increased business activity across all segments.

INTEREST EXPENSE.

Interest expense for the six months ended June 30, 2022 remained materially consistent with an increase of $0.2 million compared with the prior year's corresponding period.

Interest expense for the nine months ended September 30, 2022 increased $1.8 million compared with the prior year's corresponding period, primarily due to borrowings on the ABL Revolver in addition to the borrowings under the Term Loan B for the nine months ended September 30, 2022.

INCOME TAXES.

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.

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, 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, 2021, the effective tax rate was decreased by research and development tax credits and other tax credits, net operating loss 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.

LIQUIDITY AND CAPITAL RESOURCES

General Overview

As of June 30, 2022, we had cash and restricted cash of $20.7 million and credit facility availability of $103.0 million.

We have a $135.0 million asset backed revolving line of credit (the "ABL Revolver"), partially offset by letters of credit of $2.9 million, that was due to mature in August 2022, which we had borrowings of $29.1 million outstanding as of June 30, 2022 and a Term Loan B with $325.1 million in borrowings as of June 30, 2022.

As of September 30, 2022, we had cash and restricted cash of $17.1 million and credit facility availability of $91.7 million.

We have a $135.0 million asset backed revolving line of credit (the "ABL Revolver"), partially offset by letters of credit of $2.7 million, that was due to mature in August 2022, which we had borrowings of $40.6 million outstanding as of September 30, 2022 and a Term Loan B with $325.1 million in borrowings as of September 30, 2022.

On July 19, 2022, the Company amended and extended the ABL Revolver prior to the August deadline.

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

Six Months Ended June 30,

Nine Months Ended September 30,

Net Cash Provided by (Used in):

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Operating Activities

The Company generated $5.7 million of cash from operating activities during the six months ended June 30, 2022 compared to $16.2 million of cash generated during the prior year's corresponding period.

The $10.5 million decrease in the amount of cash provided between the two periods was primarily driven by the increase in project work activity during the period.

The Company generated $2.3 million of cash from operating activities during the nine months ended September 30, 2022 compared to $22.8 million of cash generated during the prior year's corresponding period.

The $20.6 million decrease in the amount of cash provided between the two periods was primarily driven by the increase in accounts receivable, inventory and project work activity during the period.

Cash is generally used to fund project costs ahead of actual billings and collection.

Investing Activities

For the six months ended June 30, 2022, net cash used in investing activities was $46.0 million compared to a $44.7 million use of cash during the prior year’s corresponding period.

This $1.3 million increase was primarily driven by the sale of a corporate asset in 2021 totaling $1.3 million without comparable activity in the current year which partially offset spending in 2021.

For the nine months ended September 30, 2022, net cash used in investing activities was $51.9 million compared to a $66.3 million use of cash during the prior year’s corresponding period.

This $14.4 million decrease was primarily driven by a reduction in the total consideration paid for acquisitions during 2022 of $48.5 million compared to $64.6 million for acquisitions in 2021.

Financing Activities

For the six months ended June 30, 2022, net cash provided by financing activities was $12.0 million, compared to net cash used in financing activities of $12.0 million during the prior year’s corresponding period.

The activity in the period was primarily attributed to a net drawdown on the ABL Revolver.

Partially offsetting cash provided by the drawdown was the final share repurchase installment payment of $13.6 million related to shares authorized for repurchase in 2021, as well as current period share purchases of $1.5 million.

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 we purchased approximately 59 thousand shares for approximately $1.5 million.

For the nine months ended September 30, 2022, net cash provided by financing activities was $18.3 million, compared to net cash used in financing activities of $12.9 million during the prior year’s corresponding period.

The activity in the period was primarily attributed to a net drawdown on the ABL Revolver of $40.6 million.

Partially offsetting cash provided by the drawdown for the final share repurchase installment payments of $13.6 million related to shares authorized for repurchase in 2021, as well as current year share repurchases of $4.9 million.

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 over the next 24 months at the discretion of management.

During the nine months ended September 30, 2022 we purchased approximately 184 thousand shares for approximately $4.9 million.

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.

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

There are no installment payments outstanding.

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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.

RECENT ACCOUNTING PRONOUNCEMENTS

4 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis