What changed in this filing

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Item 1. Financial Statements

2023-08-09 compared with 2023-05-15 · 169 added, 105 removed, 230 unchanged (54% of the section changed)

4 unchanged sentences

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

Three Months Ended March 31,

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

2023 2022 2023 2022

Sales $ 428,040 $ 367,812 $ 852,307 $ 687,223

3 unchanged sentences

Income from operations 37,480 25,920 72,879 47,480

Other (income) expense ( 469 ) 536

Other (income) expense, net ( 242 ) 839 ( 712 ) 1,377

Interest expense 11,863 5,615 23,384 10,777

2 unchanged sentences

Net income 19,054 14,493 36,634 27,021

Net loss attributable to noncontrolling interest — ( 113 )

Net income (loss) attributable to noncontrolling interest — 60 — ( 53 )

Net income attributable to DXP Enterprises, Inc.

16 unchanged sentences

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Current assets:

1 unchanged sentence

Restricted cash 91 91

Accounts Receivable, net of allowance of $ 8,090 and $ 7,610

Accounts receivable, net of allowance of $ 8,495 and $ 7,610 , respectively

318,651 320,880

7 unchanged sentences

Other intangible assets, net 72,466 79,585

Operating lease ROU assets 52,353 57,402

Operating lease right of use assets, net 54,051 57,402

Other long-term assets 9,138 4,456

7 unchanged sentences

Billings in excess of costs and estimated profits 5,333 10,411

Federal income taxes payable 6,266 —

Short-term operating lease liabilities 17,324 18,083

12 unchanged sentences

Common stock, $ 0.01 par value, 100,000,000 shares authorized;

17,548,600 and 17,690,069 outstanding

16,788,711 and 17,690,069 outstanding, respectively

Additional paid-in capital 214,852 213,937

1 unchanged sentence

Accumulated other comprehensive loss ( 30,918 ) ( 31,675 )

Treasury stock, at cost 2,774,887 and 2,435,352 shares

Treasury stock, at cost 3,523,707 and 2,435,352 shares, respectively

( 101,968 ) ( 67,780 )

7 unchanged sentences

(in thousands) (unaudited)

Three Months Ended March 31,

Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

4 unchanged sentences

Provision for credit losses 1,001 314

Payment of contingent consideration liability in excess of acquisition-date fair value ( 79 ) —

Fair value adjustment on contingent consideration 839 1,689

1 unchanged sentence

Deferred income taxes ( 6,313 ) 1,610

Changes in operating assets and liabilities, and other:

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

Changes in operating assets and liabilities:

Accounts receivables, net 3,815 ( 50,616 )

Costs and estimated profits in excess of billings ( 23,151 ) ( 8,466 )

Accounts payable and accrued expenses 1,721 42,030

1 unchanged sentence

Inventories ( 3,179 ) ( 15,754 )

Other ( 20,291 ) ( 3,829 )

Billings in excess of costs and estimated profits ( 5,095 ) ( 1,502 )

Other long-term liabilities ( 3,643 ) ( 2,923 )

Net cash provided by operating activities $ 24,017 $ 5,686

1 unchanged sentence

Purchase of property and equipment ( 5,617 ) ( 1,848 )

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

Acquisition of businesses, net of cash acquired ( 8,488 ) ( 44,117 )

Net cash used in investing activities $ ( 14,105 ) $ ( 45,965 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Principal debt payments ( 1,092 ) ( 825 )

Borrowings on asset-backed credit facility 7,870 231,968

Repayments on asset-backed credit facility ( 7,870 ) ( 202,844 )

Repayments under term loan facility ( 2,184 ) ( 1,650 )

Payment for acquisition contingent consideration liability ( 3,921 ) —

Preferred stock dividends paid ( 45 ) ( 45 )

Purchase of treasury stock ( 9,135 ) ( 8,315 )

Shares repurchased held in treasury ( 33,583 ) ( 15,116 )

Payment for employee taxes withheld from stock awards ( 432 ) ( 290 )

Net cash provided by (used in) financing activities $ ( 10,354 ) $ ( 9,322 )

Net cash (used in) provided by financing activities $ ( 40,165 ) $ 12,023

Effect of foreign currency on cash ( 240 ) ( 159 )

4 unchanged sentences

Shares issued for acquisitions ( Note 12 )

Shares repurchased held in treasury ( Note 13 )

$ ( 605 ) $ —

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

8 unchanged sentences

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

Issuance of shares of common stock — — — 527 — — — — 527

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

Purchase of treasury stock — — — — — ( 1,513 ) — — ( 1,513 )

Repurchases of shares — — — — — ( 9,135 ) — — ( 9,135 )

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

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

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

Restricted stock compensation expense — — — 871 — — — — 871

Tax related items for share based awards — — — ( 328 ) — — — — ( 328 )

Currency translation adjustment — — — — — — — 659 659

Repurchases of shares — — — — — ( 25,053 ) — — ( 25,053 )

Net income (loss) — — — — 19,054 — — — 19,054

Balance at June 30, 2023 $ 1 $ 15 $ 345 $ 214,852 $ 287,138 $ ( 101,968 ) $ — $ ( 30,918 ) $ 369,465

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 — — — ( 159 ) — — — — ( 159 )

Issuance of shares of common stock — — 527 — — — — 527

Currency translation adjustment — — — — — — — 1,669 1,669

Purchase of treasury stock — — — — — ( 9,135 ) — — ( 9,135 )

Repurchases of shares — — — — — ( 1,513 ) — — ( 1,513 )

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

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

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

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

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

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

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

Net income (loss) — — — — 14,433 — 60 — 14,493

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

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

4 unchanged sentences

DXP Enterprises, Inc.

together with its subsidiaries (collectively "DXP," "Company," "us," "we," or "our") was incorporated in Texas on July 26, 1996.

together with its subsidiaries (collectively "DXP," the "Company," "us," "we," or "our") was incorporated in Texas on July 26, 1996.

DXP Enterprises, Inc.

and its subsidiaries are engaged in the business of distributing maintenance, repair and operating ("MRO") products and services to a variety of end markets and industrial customers.

Additionally, DXP provides integrated, custom pump skid packages, pump remanufacturing and manufactures branded private label pumps to energy and industrial customers.

The Company is organized into three business segments:

and its subsidiaries are engaged in the business of distributing maintenance, repair and operating ("MRO") products and services to a variety of end markets and business-to-business customers.

Additionally, DXP provides integrated, custom pump skid packages, pump remanufacturing and manufactures branded private label pumps to energy and broad industrial customers.

The Company is currently organized into three business segments:

Service Centers ("SC"), Supply Chain Services ("SCS") and Innovative Pumping Solutions ("IPS").

3 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 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 three months ended March 31, 2023 are not necessarily indicative of results expected for the full fiscal year.

For interim financial reporting not all disclosures normally required in annual consolidated financial statements prepared in accordance with US GAAP are required.

The unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2022 that are included in our annual report on Form 10-K filed with the SEC on April 17, 2023 (“Annual Report”).

The results of operations for the six months ended June 30, 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.

The ownership interest of noncontrolling investors of the Company's subsidiaries are recorded as noncontrolling interest.

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..

During the fourth quarter of 2022, the Company became aware of a financing cash flow error related to borrowings and repayments on our asset-backed credit facility as a result of the Company inadvertently duplicating journal entries, resulting in the overstatement of financing cash flow activities from borrowings and repayments related to our revolving credit facility.

Management's assessment concluded that the errors were not material, individually or in the aggregate, to any prior period unaudited condensed consolidated financial statements.

The Company concluded to revise prior period unaudited condensed consolidated financial statements the next time they were reported.

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

The unaudited condensed consolidated financial statements included herein, have been revised to correct for the impact of these errors.

The revision for the unaudited condensed consolidated statement of cash flows for the six months ended June 30, 2022, is provided in the following table ( in thousands ):

As Previously Reported Adjustments Revised

Proceeds from asset-backed credit facility $ 235,969 $ ( 4,001 ) $ 231,968

Payments on asset-backed credit facility ( 206,845 ) 4,001 ( 202,844 )

The change did not result in a change in net income or earnings per share for the three and six months ended June 30, 2022.

Additionally, the change did not result in a change in the unaudited condensed consolidated balance sheets and statements of equity.

NOTE 3 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

The Company has implemented all new accounting pronouncements that are in effect and is evaluating any new accounting pronouncements 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 believe the new accounting pronouncement will have a material impact on its financial position or results of operations for recent acquisitions.

Accounting Pronouncements Not Yet Adopted

1 unchanged sentence

NOTE 4 - FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

Authoritative guidance for financial assets and liabilities measured on a recurring basis applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis.

Fair value, as defined in the authoritative guidance, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The authoritative guidance affects the fair value measurement of an investment with quoted market prices in an active market for identical instruments, which must be classified in one of the following categories:

Level 1 inputs come from quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 inputs are other than quoted prices that are observable for an asset or liability.

These inputs include:

quoted prices for similar assets or liabilities in active markets;

quoted prices for identical or similar assets or liabilities in markets that are not active;

inputs other than quoted prices that are observable for the asset or liability;

and inputs that are derived principally from, or corroborated by, observable market data by correlation or other means.

Level 3 inputs are unobservable inputs for an asset or liability which require the Company's own assumptions.

Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.

Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

Our acquisitions may include contingent consideration as part of the purchase price.

1 unchanged sentence

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

The fair value measurement includes inputs that are Level 3 inputs as discussed above, as they are not observable in the market.

The fair value measurement includes inputs that are Level 3 inputs as they are not observable in the market.

Should actual results increase or decrease as compared to the assumptions used in our analysis, the fair value of the contingent consideration obligations will increase or decrease, up to the contracted limit, as applicable.

Changes in the fair value of the contingent earn-out consideration are measured each reporting period and reflected in our results of operations.

As of March 31, 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.

("Burlingame"), Drydon Equipment, Inc.

As of June 30, 2023, we recorded liabilities in other current and long-term liabilities for contingent consideration associated with the acquisitions of Process Machinery, Inc.

("PMI"), Drydon Equipment, Inc.

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

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

("Sullivan") of $ 1.2 million, $ 0.5 million, $ 2.8 million, $ 4.8 million, and $ 1.2 million, respectively.

For the Company's assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3), the following table provides a reconciliation of the beginning and ending balances for each category therein, and gains or losses recognized during the three months ended March 31, 2023:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

Contingent Liability for Accrued Consideration

(in thousands)

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

("Sullivan"), Florida Valve & Equipment, LLC and Environmental MD, Inc.

(collectively,“Florida Valve EMD”) and Riordan Materials Corporation (“Riordan”) of $ 1.3 million, $ 1.8 million, $ 2.3 million, $ 1.6 million, $ 0.3 million, and $ 2.2 million, respectively.

The following table provides a reconciliation of the beginning and ending balances for each category therein, and gains or losses recognized during the six months ended June 30, 2023 ( in thousands ):

Contingent Consideration

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

Acquisitions and settlements:

Acquisitions ( Note 12 )

Settlements ( 4,000 )

Total remeasurement adjustments:

Changes in fair value recorded in other (income) expense, net 839

*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 March 31, 2023 Valuation Technique Significant Unobservable

Contingent consideration:

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

*Ending Balance at June 30, 2023 $ 9,503

*Amounts included in other current liabilities were $ 6.1 million and $ 5.5 million for the periods ending June 30, 2023 and December 31, 2022, respectively.

Amounts included in long-term liabilities were $ 3.4 million and $ 4.7 million for the periods ending June 30, 2023 and December 31, 2022, respectively.

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 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.

The significant Level 3 unobservable inputs used in the fair value measurement of contingent consideration related to the acquisitions of PMI, Drydon, Cisco, Sullivan, Florida Valve EMD, and Riordan 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 calculations was between 9.2 percent and 9.6 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 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 ).

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.

Other financial instruments not measured at fair value on the Company's unaudited condensed consolidated balance sheets at June 30, 2023 and December 31, 2022, but which require disclosure of their fair values include:

cash, restricted cash, accounts receivable, trade accounts payable and accrued expenses.

The Company believes that the estimated fair value of such instruments at June 30, 2023 and December 31, 2022 approximates their carrying value as reported on the unaudited condensed consolidated balance sheets due to the relative short maturity of these instruments.

See Note 8 - Long-term Debt for fair value disclosures on our asset-backed line of credit and term loan debt under our syndicated credit agreement facilities.

NOTE 5 – INVENTORIES

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Finished goods $ 95,410 $ 82,906

2 unchanged sentences

NOTE 6 – CONTRACT ASSETS AND LIABILITIES

Under our customized pump production and long-term water and wastewater project contracts in our IPS segment, amounts are billed as work progresses in accordance with agreed-upon contractual terms, upon various measures of performance, including achievement of certain milestones, completion of specified units, or completion of a contract.

Generally, billing occurs subsequent to revenue recognition, resulting in contract assets.

Our contract assets are presented as “Cost and estimated profits in excess of billings” on our unaudited condensed consolidated balance sheets.

Under our customized pump production and water and wastewater project contracts in our IPS segment, amounts are billed as work progresses in accordance with agreed-upon contractual terms, upon various measures of performance, including achievement of certain milestones, completion of specified units, or completion of a contract.

Generally, billing occurs subsequent to revenue recognition, resulting in contract assets presented as "Costs and estimated profits in excess of billings".

However, we sometimes receive advances or deposits from our customers before revenue is recognized, resulting in contract liabilities that are presented as “Billings in excess of costs and estimated profits” on our unaudited condensed consolidated balance sheets.

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Costs incurred on uncompleted contracts $ 97,872 $ 70,329

3 unchanged sentences

Net $ 41,424 $ 13,182

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

Such amounts were included in the accompanying unaudited condensed consolidated balance sheets for June 30, 2023 and December 31, 2022 under the following captions ( in thousands ):

June 30, 2023 December 31, 2022

Costs and estimated profits in excess of billings $ 46,770 $ 23,588

2 unchanged sentences

Net $ 41,424 $ 13,182

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.

During the six months ended June 30, 2023, $ 10.0 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 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.

Our effective tax rate from continuing operations was a tax expense of 26.3 percent for the three months ended June 30, 2023 compared to a tax expense of 25.5 percent for the three months ended June 30, 2022.

Compared to the U.S.

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.

statutory rate for the three months ended June 30, 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.

Our effective tax rate from continuing operations was a tax expense of 27.0 percent for the six months ended June 30, 2023 compared to a tax expense of 23.5 percent for the six months ended June 30, 2022.

Compared to the U.S.

statutory rate for the six months ended June 30, 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.

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

To the extent penalties and interest would be assessed on any underpayment of income tax, such accrued amounts would be classified as a component of income tax provision (benefit) in the financial statements consistent with the Company’s policy.

1 unchanged sentence

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Carrying Value (1)

5 unchanged sentences

Long-term debt less current maturities $ 421,580 $ 423,688 $ 423,764 $ 406,814

(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.

(1) Carrying value amounts do not include unamortized debt issuance costs of $ 13.2 million and $ 14.6 million for June 30, 2023 and December 31, 2022, respectively.

Credit Agreements

3 unchanged sentences

The ABL Revolver matures on July 19, 2027.

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.

As of June 30, 2023, the Company had no borrowings outstanding under the ABL Revolver, and total borrowing capacity under the ABL Revolver was $ 132.3 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

As of June 30, 2023 there was $ 425.9 million outstanding under the Term Loan Agreement.

The Term Loan Amendment amends and supplements the Term Loan Agreement, dated as of December 23, 2020, and provides for among other things, $ 105.0 million in new incremental commitments.

The Term Loan Agreement and Term Loan Amendment amortizes in equal quarterly installments of 0.25 percent with the balance payable in December 2027 when the facility matures.

Subject to securing additional lender commitments, the Term Loan Agreement allows for incremental increases in facility size up to an aggregate of $ 85.0 million, plus an additional amount such that the Company's Secured Leverage Ratio (as defined in the Term Loan Agreement) would not exceed 3.75 to 1.00.

Interest accrues on the Term Loan at a rate equal to SOFR plus a margin of 5.25 percent for the SOFR Loans (as defined in the Term Loan Amendment).

We are required to repay the Term Loan with certain asset sales and insurance proceeds, certain debt proceeds and 50 percent of excess cash flow--reducing to (i.) 25 percent if our total leverage ratio is no more than 3.00 to 1.00 and (ii.) zero percent if our total leverage ratio is no more than 2.50 to 1.00.

The Company was in compliance with all financial covenants under the ABL Credit Agreement and Term Loan Agreements as of June 30, 2023.

NOTE 9 - EARNINGS PER SHARE

Basic earnings per share is computed based on weighted average shares outstanding and excludes dilutive securities.

1 unchanged sentence

The following table sets forth the computation of basic and diluted earnings per share for the periods indicated ( in thousands, except per share data ):

Three Months Ended March 31,

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

2023 2022 2023 2022

Basic earnings per share:

Weighted average shares outstanding 17,211 18,766 17,402 18,651

4 unchanged sentences

Per share amount $ 1.11 $ 0.77 $ 2.10 $ 1.45

Diluted earnings per share:

Weighted average shares outstanding 17,211 18,766 17,402 18,651

12 unchanged sentences

Service Centers, Innovative Pumping Solutions and Supply Chain Services.

The Service Centers segment is engaged in providing MRO products, equipment and integrated services, including logistics capabilities, to industrial customers.

The Service Centers segment is engaged in providing MRO products, equipment and integrated services, including logistics capabilities, to business-to-business customers.

The Service Centers segment provides a wide range of MRO products in the rotating equipment, bearing, power transmission, hose, fluid power, metal working, industrial supply, safety products and safety services categories.

3 unchanged sentences

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

Three Months Ended March 31,

SC IPS SCS Total SC IPS SCS Total

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

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

Three Months Ended March 31,

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

2023 2022 2023 2022

Service Centers $ 298,432 $ 251,098 $ 593,658 $ 469,894

Innovative Pumping Solutions 63,441 57,788 125,439 110,846

Supply Chain Services 66,167 58,926 133,210 106,483

Total Sales $ 428,040 $ 367,812 $ 852,307 $ 687,223

Operating Income

Service Centers $ 44,129 $ 32,368 $ 88,834 $ 59,719

Innovative Pumping Solutions 10,178 8,726 20,483 15,795

Supply Chain Services 5,416 4,958 10,929 8,978

Total Segments Operating Income $ 59,723 $ 46,052 $ 120,246 $ 84,492

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

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

2023 2022 2023 2022

Income from operations for reportable segments $ 59,723 $ 46,052 $ 120,246 $ 84,492

4 unchanged sentences

Interest expense 11,863 5,615 23,384 10,777

Other expense (income), net ( 469 ) 536

Other (income) expense, net ( 242 ) 839 ( 712 ) 1,377

Income before income taxes $ 25,859 $ 19,466 $ 50,207 $ 35,326

NOTE 12 - BUSINESS ACQUISITIONS

On May 1, 2023, the Company completed the acquisition of Florida Valve EMD, a leading provider of valve and related products and services for the municipal water markets in the State of Florida.

Florida Valve EMD is included within our IPS business segment.

Total consideration for the transaction was approximately $ 3.0 million, funded with a mixture of cash on hand of $ 2.6 million and future consideration of $ 0.3 million.

Goodwill for the transaction totaled approximately $ 2.0 million.

On May 1, 2023, the Company completed the acquisition of Riordan, 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.

Riordan is included within our IPS business segment.

Total consideration for the transaction was approximately $ 8.4 million, funded with a mixture of cash on hand of $ 6.2 million and future consideration of $ 2.2 million.

Goodwill for the transaction totaled approximately $ 5.9 million.

In aggregate, the acquisition-date fair value of the consideration transferred for the two businesses totaled $ 11.3 million, which consisted of the following ( in thousands ):

Purchase Price Consideration

Cash payments $ 8,844

Future consideration 2,498

Total purchase price consideration $ 11,342

Pro forma results of operations information have not been presented, as the effect of the recent acquisitions is not material.

The operating results of Riordan and Florida Valve EMD are included within the Company's consolidated statements of operations since the acquisition date of May 1, 2023 and were not material for the six months ended June 30, 2023.

Pursuant to US GAAP, costs incurred to complete the acquisitions as well as costs incurred to integrate into the Company’s operations are expensed as incurred.

Transaction-related costs incurred, which are included within Selling, general, and administrative expenses in the consolidated statements of operations, were not material for the six months ended June 30, 2023.

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

Accounts receivable 2,236

Inventory 355

Other current assets 134

Non-compete agreements 595

Customer relationships 1,708

Property and equipment 41

Other assets 5

Assets acquired 5,426

Current liabilities assumed ( 1,395 )

Other long term liabilities ( 23 )

Deferred tax liability ( 538 )

Net assets acquired 3,470

Total Consideration 11,342

Goodwill $ 7,872

Of the $ 2.3 million of acquired intangible assets, $ 0.6 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, $ 1.7 million was assigned to customer relationships and will be amortized over a period of 8 years.

The goodwill total of approximately $ 7.9 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 approximately $ 400 thousand 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.

NOTE 13 - SHARE REPURCHASE

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 March 31, Three Months Ended March 31,

(in thousands, except per share data) 2023 2022

(in thousands, except share data) Three Months Ended June 30, 2023 Six Months Ended June 30, 2023

Total number of shares purchased 748,820 1,088,355

1 unchanged sentence

Average price paid per share $ 31.96 $ 30.49

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