What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-15 compared with 2022-11-09 · 59 added, 153 removed, 133 unchanged (61% of the section changed)

1 unchanged sentence

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 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.

together with its subsidiaries (collectively "DXP," "Company," "us," "we," or "our") for the three months ended March 31, 2023 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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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.

The IRA establishes 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

In February 2022, Russia invaded Ukraine.

DXP has no direct exposure to Russia or Ukraine, however, the Company continues to monitor any broader impact in the global economy, including inflation and cost pressures, supply chains and energy prices.

The full impact of the conflict on the Company’s business and financial results remains uncertain and will depend on the severity and duration of the war and its impact on global economic conditions.

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.

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

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 nine months ended September 30, 2022, causing disruptions in the U.S.

and global markets.

While the ongoing recovery continues, it has been accompanied by a resurgence in demand, as industries return to regular operations.

The full extent and long-term impacts on the Company’s business and financial results will depend on several uncertain and unpredictable developments including any continued spread of the virus and its variants, the availability and effectiveness of treatments and vaccines, imposition of protective public safety measures and the overall impact of government measures to combat the spread of the virus.

We are not able to predict whether our customers will continue to operate at their current or historical levels, and such decreases in their operations would have a negative impact on our business.

We are also unable to predict how long the COVID-19 pandemic will last and the impact of the pandemic on future demand for our products and services.

For additional discussion of the potential impact of the COVID-19 pandemic on our business, see Part I, Item 1A:

Risk Factors in the Company’s 2021 Form 10-K.

Matters Affecting Comparability

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.

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 three months ended March 31, 2023.

Service Centers and Supply Chain Services Segments

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

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.

For the three months ended March 31, 2023, we had approximately $362.3 million in sales in our Service Centers and Supply Chain Services segments, an increase of approximately 36.0 percent compared to the three months ended March 31, 2022.

Our performance has been strengthened by price increases from our vendors and suppliers that we typically pass through to our customers.

During 2022 and into the first quarter of 2023 we have benefited from these price increases.

As we move into the second quarter and second half of 2023, we expect the impact of these price increases to moderate.

Innovative Pumping Solutions Segment

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.

For the three months ended March 31, 2023, we had approximately $62.0 million in sales in our Innovative Pumping Solutions segment, an increase of approximately $8.9 million compared to the three months ended March 31, 2022, of which $3.3 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.

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These forces contributed to higher spending by oil and gas producers, and thus, an increase in oil and gas projects within our Innovative Pumping Solutions segment.

We expect to benefit from the increased activity throughout 2022.

We expect to benefit from the increased oil and gas activity throughout 2023.

Additionally, we expect to benefit from the recent water and wastewater acquisitions as we continue to scale this platform both organically and by positioning DXP Water to bid on projects that historically may have not been available to the separate acquisitions on a standalone basis.

RESULTS OF OPERATIONS

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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 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,

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

Three Months Ended March 31,

2023 % 2022 %

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Diluted earnings per share 0.95 $ 0.65

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.

Three Months Ended March 31, 2023 compared to Three Months Ended March 31, 2022

Sales for the three months ended March 31, 2023 increased $104.9 million, or 32.8 percent, to approximately $424.3 million from $319.4 million for the prior year's corresponding period.

Sales from businesses acquired in 2022 for three months ended March 31, 2023, accounted for $9.3 million of the sales.

This overall sales increase is the result of an increase in sales in our SC, IPS and SCS segments of $76.4 million, $8.9 million, and $19.5 million, respectively.

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

Three Months Ended September 30,

Three Months Ended March 31,

2023 2022 Change Change%

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Service Centers segment.

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.

This sales increase is primarily the result of increased sales of rotating equipment, safety supplies, metal working, and bearings and power transmission products to customers engaged in variety of markets as a result of the lifting of pandemic restrictions and a return to normal production and activity.

Sales for the SC segment increased by approximately $76.4 million, or 34.9 percent, for the three months ended March 31, 2023, compared to the prior year's corresponding period.

Excluding $6.0 million of SC segment sales associated with acquisitions in the prior period, sales increased $70.4 million from the prior year's corresponding period.

This sales increase is primarily the result of increased sales of rotating equipment and bearings and power transmission products to customers engaged in variety of markets.

Innovative Pumping Solutions segment .

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.

Sales for the IPS segment increased by $8.9 million, or 16.9 percent, for the three months ended March 31, 2023, compared to the prior year's corresponding period.

Excluding $3.3 million of IPS segment sales from acquisitions in the prior period, IPS segment sales increased $5.6 million 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.

Supply Chain Services segment.

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.

Sales for the SCS segment increased by $19.5 million, or 41.0 percent, for the three months ended March 31, 2023, 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 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.

Gross profit as a percentage of sales for the three months ended March 31, 2023 was 29.5 percent versus 29.7 percent in the prior year's corresponding period.

Excluding the impact of the businesses acquired in the prior period, gross profit as a percentage of sales was 29.2 percent.

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, 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.

As a percentage of sales, for the three months ended March 31, 2023 gross profit percentage for the SC segment increased approximately 20 basis points.

Excluding for the businesses acquired in the prior period, gross profit as a percentage of sales decreased approximately 30 basis points from 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

Gross profit for the SC segment, excluding businesses acquired in the prior period, increased $20.9 million, or 30.9 percent, during the three months ended March 31, 2023 compared to the prior year’s corresponding period.

Innovative Pumping Solutions segment.

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.

As a percentage of sales, for the three months ended March 31, 2023 gross profit percentage for the IPS segment increased approximately 185 basis points.

Excluding for the businesses acquired, gross profit as a percentage of sales increased approximately 235 basis points from the prior year's corresponding period.

Gross profit increased $3.1 million compared to the prior year corresponding period, excluding business acquired, primarily as a result of an increase in project work caused by an increase in capital spending by our customers.

Supply Chain Services segment.

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.

As a percentage of sales, for the three months ended March 31, 2023 gross profit percentage for the SCS segment decreased approximately 375 basis points compared to the prior year's corresponding period.

Gross profit for the first quarter of 2023 increased $2.1 million, or 18.8 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 for the three months ended March 31, 2023 increased by approximately $16.3 million, or 22.3 percent, to $89.6 million from $73.3 million for the prior year's corresponding period.

SG&A from businesses acquired accounted for $2.0 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 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 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 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.

Nine Months Ended September 30,

2022 % 2021 %

Sales $ 1,074,537 100.0 % $ 820,772 100.0 %

Cost of sales 763,758 71.1 % 576,921 70.3 %

Gross profit $ 310,779 28.9 % $ 243,851 29.7 %

Selling, general and administrative expenses 236,761 22.0 % 211,587 25.8 %

Income from operations $ 74,018 6.9 % $ 32,264 3.9 %

Other (income) expense, net 2,941 0.3 % (985) (0.1) %

Interest expense 17,610 1.6 % 15,844 1.9 %

Income before income taxes $ 53,467 5.0 % $ 17,405 2.1 %

Provision for income taxes 13,402 1.2 % 2,380 0.3 %

Net income $ 40,065 3.7 % $ 15,025 1.8 %

Net loss attributable to noncontrolling interest (938) — (590) — %

Net income attributable to DXP Enterprises, Inc.

$ 41,003 3.8 % $ 15,615 1.9 %

Per share amounts attributable to DXP Enterprises, Inc.

Basic earnings per share $ 2.19 $ 0.82

Diluted earnings per share $ 2.10 $ 0.78

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.

Nine Months Ended September 30,

2022 2021 Change Change%

Sales by Business Segment (in thousands, except change %)

Service Centers 729,977 608,542 $ 121,435 20.0 %

Innovative Pumping Solutions 169,890 96,411 73,479 76.2 %

Supply Chain Services 174,670 115,819 58,851 50.8 %

Total DXP Sales $ 1,074,537 $ 820,772 $ 253,765 30.9 %

Service Centers segment.

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 $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.

The current level of IPS sales activity could continue during the remainder of 2022, as a result of increased optimism related to oil and gas demand recovery.

Supply Chain Services segment.

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 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 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, 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 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 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.

Excluding expenses from businesses acquired, SG&A for the quarter increased by $14.3 million, or 19.5 percent, compared to the prior year's corresponding period.

OPERATING INCOME.

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.

Operating income for the first quarter of 2023 increased by $13.8 million to $35.4 million, from $21.6 million in the prior year's corresponding period.

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

INTEREST EXPENSE.

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.

Interest expense for the first quarter of 2023 increased $6.4 million compared to the prior year's corresponding period.

This increase was primarily due to the Company borrowing an additional $105.0 million on its Term Loan B during the fourth quarter of 2022 and incurring higher than average interest rates on such debt due to changes in the macroeconomic environment and the associated increasing interest rate policy by the U.S.

Federal Reserve Bank.

INCOME TAXES.

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, 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.

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.

LIQUIDITY AND CAPITAL RESOURCES

General Overview

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.

The ABL Revolver matures on July 19, 2027.

As of March 31, 2023, we had cash and restricted cash of $58.4 million and credit facility availability of $132.4 million.

We have a $135.0 million asset backed revolving line of credit (the "ABL Revolver"), partially offset by letters of credit of $2.6 million.

We had no borrowings outstanding on our ABL Revolver as of March 31, 2023.

We had $427.0 million in borrowings on our Term Loan B as of March 31, 2023.

On July 19, 2022, the Company amended and extended the maturity date of the ABL Revolver to July 19, 2027.

Our primary source of capital is cash flow from operations, supplemented as necessary by bank borrowings or other sources of financing.

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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) :

Nine Months Ended September 30,

Three Months Ended March 31,

Net Cash Provided by (Used in):

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Operating Activities

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.

The Company generated $26.4 million of cash from operating activities during the three months ended March 31, 2023 compared to $2.7 million of cash generated during the prior year's corresponding period.

The $23.8 million increase in the amount of cash provided between the two periods was primarily due to increased business activity.

Investing Activities

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.

For the three months ended March 31, 2023, net cash used in investing activities was $3.8 million compared to a $6.1 million use of cash during the prior year’s corresponding period.

This $2.3 million decrease was primarily driven by a reduction in the total purchase price paid for acquisitions during the three months ended March 31, 2022 of $5.3 million without comparable activity during the three months ended March 31, 2023.

The decrease was partially offset by purchases of property and equipment of $3.8 million for the three months ended March 31, 2023 compared to $740 thousand for the three months ended March 31, 2022.

Financing Activities

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.

For the three months ended March 31, 2023, net cash used in financing activities was $10.4 million, compared to net cash used in financing activities of $9.3 million during the prior year’s corresponding period.

The increase was primarily due to an increase of $0.8 million in share repurchases.

Funding Commitments

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The Company's unaudited condensed 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.

RECENT ACCOUNTING PRONOUNCEMENTS

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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