What changed in this filing

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Item 1. Financial Statements

2023-05-15 compared with 2022-11-09 · 59 added, 249 removed, 276 unchanged (53% of the section changed)

4 unchanged sentences

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

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

2022 2021 2022 2021

Three Months Ended March 31,

Sales $ 424,267 $ 319,411

3 unchanged sentences

Income from operations 35,399 21,559

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

Other (income) expense ( 469 ) 536

Interest expense 11,521 5,162

Income before income taxes 24,347 15,861

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

Provision for income tax expense 6,767 3,332

Net income 17,580 12,529

18 unchanged sentences

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Current assets:

44 unchanged sentences

equity 374,284 365,392

Noncontrolling interest ( 885 ) 53

Total equity 385,612 346,727

Total liabilities and equity $ 1,053,161 $ 1,037,280

4 unchanged sentences

(in thousands) (unaudited)

Nine Months Ended September 30,

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

2 unchanged sentences

Depreciation 2,024 2,517

Amortization of intangible assets 13,958 12,690

Gain on sale of property and equipment — ( 246 )

Amortization of intangible assets and deferred financing costs 5,400 4,693

Provision for credit losses 498 ( 147 )

Payment of contingent consideration liability in excess of acquisition-date fair value ( 781 ) ( 145 )

Fair value adjustment on contingent consideration 342 531

Amortization of debt issuance costs 1,357 1,256

Restricted stock compensation expense 476 370

Deferred income taxes ( 2,799 ) 411

Changes in operating assets and liabilities, and other:

Changes in Accounts receivables, net 9,070 ( 9,485 )

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

Accounts payable and accrued expenses 13,311 9,603

Prepaid expenses and other assets 8,844 ( 3,603 )

Inventories ( 8,006 ) ( 10,910 )

Other ( 20,291 ) ( 3,829 )

Net cash provided by operating activities $ 26,449 $ 2,680

1 unchanged sentence

Purchase of property and equipment ( 3,804 ) ( 740 )

Proceeds from the sale of property and equipment — 1,297

Acquisition of business, net of cash acquired — ( 5,316 )

1 unchanged sentence

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from revolving credit facilities 605,257 —

Payments on revolving credit facilities ( 564,651 ) —

Principal debt payments ( 1,092 ) ( 825 )

Debt issuance costs ( 540 ) —

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

Preferred stock dividends paid ( 23 ) ( 23 )

8 unchanged sentences

Shares issued for acquisitions (Note 12)

$ 5,757 $ 11,140

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

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

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

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

Balance at December 31, 2021 $ 1 $ 15 $ 195 $ 206,772 $ 202,484 $ ( 33,511 ) $ 53 $ ( 29,282 ) $ 346,727

1 unchanged sentence

Restricted stock compensation expense — — — 370 — — — — 370

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

Tax related items for share based awards — — — ( 159 ) — — — — ( 159 )

3 unchanged sentences

Net income (loss) — — — — 12,642 — ( 113 ) — 12,529

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

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

Restricted stock compensation expense — — — 505 — — — — 505

Tax related items for share based awards — — — ( 2 ) — — — — ( 2 )

Issuance of shares of common stock — — 148 865 — — — — 1,013

Currency translation adjustment — — — — — — — ( 1,156 ) ( 1,156 )

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

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

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

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

3 unchanged sentences

Tax related items for share based awards — — — ( 104 ) — — — — ( 104 )

Issuance of shares of common stock — — 150 5,607 — — — — 5,757

Currency translation adjustment — — — — — — — 98 98

1 unchanged sentence

Net income (loss) — — — — 17,580 — — — 17,580

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

Balance at March 31, 2023 $ 1 $ 15 $ 345 $ 214,309 $ 268,106 $ ( 76,915 ) $ — $ ( 31,577 ) $ 374,284

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

14 unchanged sentences

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").

The accompanying unaudited condensed consolidated financial statements have been prepared on substantially the same basis as our annual consolidated financial statements and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022.

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 17, 2023.

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

The results of operations for the three months ended March 31, 2023 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.

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

NOTE 3 - RECENT ISSUED ACCOUNTING PRONOUNCEMENTS

The Company has implemented all new accounting pronouncements that are in effect and is evaluating any that may impact its financial statements, including the new Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers standard.

The Company does not have any acquisitions during the current period and does not believe the new accounting pronouncement to have a material impact on its financial position or results of operations for recent acquisitions..

Accounting Pronouncements Not Yet Adopted

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 .

For the Company, ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

The ASU should be applied prospectively to business combinations occurring on or after the effective date.

Early adoption of ASU 2021-08 is permitted, including in an interim period.

The Company expects the new Standard to have an impact for future acquisitions.

From time to time the Company does acquire businesses that perform project-based work and therefore include Contract Assets and Liabilities.

All other new accounting pronouncements that have been issued, but not yet effective, are currently being evaluated and at this time are not expected to have a material impact on our financial position or results of operations.

NOTE 4 - REVISION

During the first quarter of 2022, we identified errors in the translation of the goodwill associated with our investment in our Canadian subsidiaries.

We determined that we were not appropriately translating Canadian goodwill in consolidation since acquiring these businesses in 2012 and 2013.

The failure to translate these balances resulted in an overstatement of US dollar-based goodwill for several years.

We assessed the materiality of the errors on prior period financial statements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No.

99, Materiality , codified in Accounting Standards Codification (ASC) 250, Presentation of Financial Statements.

We concluded that the errors were not material to our prior period consolidated financial statements and, therefore, amendments of previously filed consolidated financial statements are not required.

In accordance with ASC 250, we have corrected the errors by revising the 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 September 30, 2021 Nine Months Ended September 30, 2021

As previously As previously

Reported Adjustments Revised Reported Adjustments Revised

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Currency translation adjustments $ ( 2,129 ) $ ( 574 ) $ ( 2,703 ) $ 475 $ 2 $ 477

Total comprehensive income $ 4,807 $ ( 574 ) $ 4,233 $ 15,500 $ 2 $ 15,502

As previously

Reported Adjustments Revised

BALANCE SHEET ( AT DECEMBER 31, 2021 ):

Goodwill $ 308,506 $ ( 11,965 ) $ 296,541

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

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

Accumulated Other Comprehensive Loss

As previously

Reported Adjustments Revised

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

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

NOTE 4 - FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

18 unchanged sentences

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 September 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 March 31, 2023, 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.

3 unchanged sentences

("Sullivan") of $ 1.2 million, $ 0.5 million, $ 2.8 million, $ 4.8 million, and $ 1.2 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 nine months ended September 30, 2022:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

2 unchanged sentences

*Beginning balance at December 31, 2022 $ 10,166

Acquisitions and settlements:

Acquisitions (Note 13)

Settlements ( 1,250 )

Total remeasurement adjustments:

Changes in fair value recorded in other (income) expense, net 342

*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.

*Ending Balance at March 31, 2023 $ 10,508

Total losses included in earnings or changes to net assets, attributable to changes in unrealized losses relating to liabilities still held at March 31, 2023.

*Amounts included in other current liabilities were $ 5.7 million and $ 5.5 million for the periods ending March 31, 2023 and December 31, 2022, respectively.

Amounts included in long-term liabilities were $ 4.8 million and $ 4.7 million for the periods ending March 31, 2023 and December 31, 2022, 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 September 30, 2022 Valuation Technique Significant Unobservable

(in thousands, unaudited) Fair value at March 31, 2023 Valuation Technique Significant Unobservable

Contingent consideration:

(PMI, Burlingame, Drydon, Cisco and Sullivan acquisitions) $ 9,980 Discounted cash flow Annualized EBITDA and probability of achievement

(PMI, Burlingame, Drydon, Cisco and Sullivan acquisitions) $ 10,508 Discounted cash flow and weighted probability of possible payments 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, Cisco and Sullivan 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 acquisitions 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 8.1 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:

Other financial instruments not measured at fair value on the Company's unaudited condensed consolidated balance sheets at March 31, 2023 and December 31, 2022, 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 8 ).

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.

The Company believes that the estimated fair value of such instruments at March 31, 2023 and December 31, 2022 approximates their carrying value as reported on the unaudited condensed consolidated balance sheets.

NOTE 5 – INVENTORIES

The carrying values of inventories are as follows ( in thousands ):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Finished goods $ 106,039 $ 82,906

7 unchanged sentences

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Costs incurred on uncompleted contracts $ 94,100 $ 70,329

3 unchanged sentences

Net $ 31,784 $ 13,182

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

Such amounts were included in the accompanying unaudited condensed consolidated balance sheets for March 31, 2023 and December 31, 2022 under the following captions ( in thousands ):

March 31, 2023 December 31, 2022

Costs and estimated profits in excess of billings $ 41,967 $ 23,588

2 unchanged sentences

Net $ 31,784 $ 13,182

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.

During the three months ended March 31, 2023, $ 9.7 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 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 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 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 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.

Our effective tax rate from continuing operations was a tax expense of 27.9 percent for the three months ended March 31, 2023 compared to a tax expense of 21.0 percent for the three months ended March 31, 2022.

Compared to the U.S.

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.

statutory rate for the three months ended March 31, 2023, 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.

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 ):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Carrying Value (1)

5 unchanged sentences

Long-term debt less current maturities $ 422,672 $ 403,652 $ 423,764 $ 406,814

(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 .

(1) Carrying value amounts do not include unamortized debt issuance costs of $ 13.9 million and $ 14.6 million for March 31, 2023 and December 31, 2022, respectively.

Credit Agreements

3 unchanged sentences

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 September 30, 2022.

As of March 31, 2023, the Company had no borrowings outstanding under the ABL Revolver.

Total borrowing capacity under the ABL Revolver was $ 132.4 million, net of the letters of credit outstanding.

On November 22, 2022, the Company entered into an amendment to its existing $ 330 million Senior Secured Term Loan (the "Term Loan Amendment"), borrowing an additional $ 105 million that was added to the existing $ 330 million Senior Secured Term Loan (the “Term Loan Agreement”).

As of March 31, 2023 there was $ 427.0 million outstanding under the Term Loan Agreement.

The Company was in compliance with all financial covenants under the ABL Revolver and Term Loan B Agreements as of March 31, 2023.

NOTE 9 - EARNINGS PER SHARE DATA

2 unchanged sentences

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 September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Weighted average shares outstanding 17,596 18,534

24 unchanged sentences

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

Three Months Ended September 30,

SC IPS SCS Total SC a

IPS SCS Total

Product sales 1

$ 238,595 $ — $ 62,294 $ 300,889 $ 199,052 $ — $ 36,213 $ 235,265

Inventory services 2

— — 5,893 5,893 — — 4,302 4,302

Staffing services 3

21,488 — — 21,488 13,487 — — 13,487

Pump production and delivery 4

— 59,044 — 59,044 — 36,440 — 36,440

Total Revenue $ 260,083 $ 59,044 $ 68,187 $ 387,314 $ 212,539 $ 36,440 $ 40,515 $ 289,494

Income from operations 5

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

Nine Months Ended September 30,

SC IPS SCS Total SC a

IPS SCS Total

Product sales 1

$ 676,815 $ — $ 157,660 $ 834,475 $ 570,737 $ — $ 103,058 $ 673,795

Inventory services 2

— — 17,010 17,010 — — 12,761 12,761

Staffing services 3

53,162 — — 53,162 37,805 — — 37,805

Pump production and delivery 4

— 169,890 — 169,890 — 96,411 — 96,411

Three Months Ended March 31,

SC IPS SCS Total SC IPS SCS Total

Total Revenue $ 295,226 $ 61,998 $ 67,043 $ 424,267 218,797 53,058 47,556 $ 319,411

Income from operations $ 44,705 $ 10,305 $ 5,514 $ 60,524 $ 27,351 $ 7,069 $ 4,020 $ 38,440

$ 95,437 $ 23,122 $ 14,311 $ 132,870 $ 77,819 $ 6,027 $ 8,991 $ 92,837

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

2 Inventory management services that are recognized over the contract life.

3 Staffing services that are invoiced on a day-rate basis.

4 Custom pump production and delivery is recognized over time.

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

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.

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 September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Income from operations for reportable segments $ 60,524 $ 38,440

6 unchanged sentences

Income before income taxes $ 24,347 $ 15,861

NOTE 13 - BUSINESS ACQUISITIONS

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 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, 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 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, 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 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, 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)

Revenue $ 1,092,823 $ 860,590

Net income $ 44,170 $ 19,492

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)

Total Consideration

Cash payments $ 53.9

Fair value of stock issued 5.8

Future consideration 8.2

Total purchase price consideration $ 67.9

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 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

Accounts receivable 5,173 — 5,173 5,941 11,114

Other receivables — — — 56 56

Inventory 3,032 — 3,032 37 3,069

Other current assets 472 ( 339 ) 133 5 138

Non-compete agreements 878 ( 1 ) 877 505 1,382

Customer relationships 10,730 6,070 16,800 1,248 18,048

Property and equipment 1,187 — 1,187 127 1,314

Operating lease ROU asset 2,168 — 2,168 — 2,168

Other assets — — — 2 2

Assets acquired $ 27,992 $ 5,730 $ 33,722 $ 8,830 $ 42,552

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

Current liabilities assumed ( 5,208 ) — ( 5,208 ) ( 1,088 ) ( 6,296 )

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

Deferred tax liability ( 2,897 ) ( 1,515 ) ( 4,412 ) — ( 4,412 )

Net assets acquired $ 17,719 $ 4,215 $ 21,934 $ 7,742 $ 29,676

Total Consideration 52,184 ( 146 ) 52,330 15,558 67,888

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

(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 Company recognized less than $ 300,000 of acquisition related costs that were expensed in the current period.

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.

Those costs were deducted from the recognized proceeds of issuance within stockholders’ equity.

NOTE 12 - 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 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.

On December 15, 2022, the Company announced a new Share Repurchase Program pursuant to which it may repurchase up to $ 85.0 million worth, or 2.8 million shares of the Company's outstanding common stock over the next 24 months.

During the three months ended March 31, 2023, the Company repurchased 339,535 shares of its common stock for approximately $ 9.1 million compared to 58,887 shares of its common stock for approximately $ 1.5 million for the three months ended March 31, 2022.

Total consideration paid to repurchase the shares was recorded in shareholders’ equity as treasury shares.

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

Three Months Ended March 31, Three Months Ended March 31,

(in thousands, except per share data) 2023 2022

2 unchanged sentences

Average price paid per share $ 27.26 $ 25.66

NOTE 13 - SUBSEQUENT EVENT

On May 1, 2023, the Company completed the acquisition of Florida Valve & Equipment, LLC and Environmental MD, Inc., (collectively, “Florida Valve EMD”).

Florida Valve EMD is a leading provider of valve and related products and services for the municipal water markets in the State of Florida.

Total consideration for the transaction was approximately $ 3.0 million, funded with cash on hand.

The preliminary purchase price allocation is not complete as of the date of this quarterly financial issuance and will be an ongoing process for up to one year subsequent to the closing date of the transaction.

On May 1, 2023, the Company completed the acquisition of Riordan Materials Corporation (“Riordan”).

Riordan is a leading provider of products for water treatment, wastewater treatment, odor control, solids handling, pumping and bio solid processes in the States of Maryland, New Jersey, Pennsylvania, Delaware and Virginia.

Total consideration for the transaction was approximately $ 6.2 million, funded with cash on hand.

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