What changed in this filing

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Item 1. Financial Statements

2023-11-09 compared with 2023-08-09 · 101 added, 63 removed, 336 unchanged (33% of the section changed)

4 unchanged sentences

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

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

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

2023 2022 2023 2022

4 unchanged sentences

Income from operations 35,856 26,539 108,735 74,018

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

Other expense (income), net 1,234 1,565 522 2,941

Interest expense 12,684 6,833 36,068 17,610

2 unchanged sentences

Net income 16,172 13,044 52,806 40,065

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

Net loss attributable to noncontrolling interest

— ( 885 ) — ( 938 )

Net income attributable to DXP Enterprises, Inc.

3 unchanged sentences

Net income $ 16,172 $ 13,044 $ 52,806 $ 40,065

Currency translation adjustments 659 ( 3,591 ) 757 ( 1,922 )

Foreign currency translation adjustments ( 844 ) ( 1,156 ) ( 87 ) ( 3,078 )

Comprehensive income $ 15,328 $ 11,888 $ 52,719 $ 36,987

9 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

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

June 30, 2023 December 31, 2022

(in thousands) (unaudited)

September 30, 2023 December 31, 2022

Current assets:

49 unchanged sentences

(in thousands) (unaudited)

Six Months Ended June 30,

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

2 unchanged sentences

Depreciation 6,262 7,367

Amortization of intangible assets and deferred financing costs 10,749 9,742

Provision for credit losses 1,001 314

Amortization of intangibles and fixed assets

15,206 13,958

Provision for (recovery of) credit losses

Payment of contingent consideration liability in excess of acquisition-date fair value ( 160 ) ( 781 )

Fair value adjustment on contingent consideration 1,502 2,125

Amortization of debt issuance costs 2,176 1,357

Restricted stock compensation expense 2,211 1,368

1 unchanged sentence

Changes in operating assets and liabilities:

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

Accounts receivable, net

2,295 ( 59,563 )

Costs and estimated profits in excess of billings ( 23,629 ) ( 12,988 )

13 unchanged sentences

Repayments under term loan facility ( 3,276 ) ( 2,475 )

Debt issuance costs

Payment for acquisition contingent consideration liability ( 5,090 ) ( 469 )

2 unchanged sentences

Payment for employee taxes withheld from stock awards ( 464 ) ( 292 )

Principal payments on finance leases ( 1,632 ) —

Net cash (used in) provided by financing activities $ ( 66,744 ) $ 18,293

3 unchanged sentences

Cash and restricted cash at end of period $ 27,267 $ 17,063

Supplemental schedule of non-cash investing and financing activities:

Shares issued for acquisitions ( Note 12 )

Shares repurchased held in treasury ( Note 13 )

$ ( 605 ) $ —

Supplemental cash flow information (Note 14)

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

10 unchanged sentences

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

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

— — — — 17,580 — — — 17,580

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

4 unchanged sentences

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

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

— — — — 19,054 — — — 19,054

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

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

Restricted stock compensation expense — — — 864 — — — — 864

Tax related items for share based awards — — — ( 32 ) — — — — ( 32 )

Currency translation adjustment — — — — — — — ( 844 ) ( 844 )

Repurchases of shares — — — — — ( 22,027 ) — — ( 22,027 )

— — — — 16,172 — — — 16,172

Balance at September 30, 2023 $ 1 $ 15 $ 345 $ 215,684 $ 303,288 $ ( 123,995 ) $ — $ ( 31,762 ) $ 363,576

DXP ENTERPRISES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(in thousands) (unaudited)

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

13 unchanged sentences

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

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

— — — — 14,433 — 60 — 14,493

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

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

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 )

Repurchases of shares — — — — — ( 3,355 ) — — ( 3,355 )

Net income (loss) — — — — 13,928 — ( 885 ) — 13,043

Balance at September 30, 2022

$ 1 $ 15 $ 345 $ 213,455 $ 243,420 $ ( 38,379 ) $ ( 885 ) $ ( 32,360 ) $ 385,612

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

9 unchanged sentences

The Company is currently organized into three business segments:

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

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

See Note 11 - Segment Reporting for discussion of the business segments.

1 unchanged sentence

Basis of Presentation

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

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

The Company's financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("U.S.

For interim financial reporting not all disclosures normally required in annual consolidated financial statements prepared in accordance with U.S.

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.

The results of operations for the nine months ended September 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.

4 unchanged sentences

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 ):

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

As Previously Reported Adjustments Revised

1 unchanged sentence

Payments on asset-backed credit facility ( 564,651 ) 27,258 ( 537,393 )

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.

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

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

10 unchanged sentences

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 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.

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

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

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

1 unchanged sentence

("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 ):

(collectively,“Florida Valve EMD”) and Riordan Materials Corporation (“Riordan”) of $ 1.8 million, $ 2.4 million, $ 1.6 million, $ 0.3 million, and $ 2.8 million, respectively.

The following table provides a reconciliation of the beginning and ending balances and gains or losses recognized during the nine months ended September 30, 2023 ( in thousands ):

Contingent Consideration

5 unchanged sentences

Changes in fair value recorded in other (income) expense, net 1,502

*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.

*Ending Balance at September 30, 2023 $ 8,916

*Amounts included in other current liabilities were $ 5.2 million and $ 5.5 million for the periods ending September 30, 2023 and December 31, 2022, respectively.

Amounts included in long-term liabilities were $ 3.7 million and $ 4.7 million for the periods ending September 30, 2023 and December 31, 2022, respectively.

Sensitivity to Changes in Significant Unobservable Inputs

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.

The significant Level 3 unobservable inputs used in the fair value measurement of contingent consideration related to the acquisitions of 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 11.1 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 June 30, 2023 and December 31, 2022, but which require disclosure of their fair values include:

The maximum amount of contingent consideration payable under these arrangements is $ 10.4 million.

Other financial instruments not measured at fair value on the Company's unaudited condensed consolidated balance sheets at September 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.

The Company believes that the estimated fair value of such instruments at September 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.

1 unchanged sentence

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Finished goods $ 77,539 $ 82,906

2 unchanged sentences

NOTE 6 – CONTRACT ASSETS AND LIABILITIES

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.

Under our customized pump production and water and wastewater project contracts, 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".

1 unchanged sentence

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Costs incurred on uncompleted contracts $ 96,903 $ 70,329

3 unchanged sentences

Net $ 40,038 $ 13,182

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

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

September 30, 2023 December 31, 2022

Costs and estimated profits in excess of billings $ 47,211 $ 23,588

2 unchanged sentences

Net $ 40,038 $ 13,182

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.

During the nine months ended September 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 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.

Our effective tax rate from continuing operations was a tax expense of 26.3 percent for the three months ended September 30, 2023 compared to a tax expense of 28.1 percent for the three months ended September 30, 2022.

Compared to the U.S.

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.

statutory rate for the three months ended September 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 26.8 percent for the nine months ended September 30, 2023 compared to a tax expense of 25.1 percent for the nine months ended September 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.

statutory rate for the nine months ended September 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.

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 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 ):

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Carrying Value (1)

2 unchanged sentences

Term Loan B 424,857 424,857 428,133 411,008

Total long-term debt 425,949 428,079 428,133 411,008

424,857 424,857 428,133 411,008

current portion ( 4,369 ) ( 4,369 ) ( 4,369 ) ( 4,194 )

Long-term debt less current maturities $ 420,488 $ 420,488 $ 423,764 $ 406,814

(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.

(1) Carrying value amounts do not include unamortized debt issuance costs of $ 12.4 million and $ 14.6 million for September 30, 2023 and December 31, 2022, respectively.

Credit Agreements

3 unchanged sentences

The ABL Revolver matures on July 19, 2027.

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.

As of September 30, 2023, the Company had no borrowings outstanding under the ABL Revolver, and total borrowing capacity under the ABL Revolver was $ 131.9 million, net of the letters of credit outstanding of $ 3.1 million.

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

As of September 30, 2023 there was $ 424.9 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.

The Term Loan Agreement and Term Loan Amendment amortize 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.

1 unchanged sentence

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.

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

NOTE 9 - EARNINGS PER SHARE

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 June 30, Six Months Ended June 30,

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

2023 2022 2023 2022

27 unchanged sentences

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

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

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

2023 2022 2023 2022

9 unchanged sentences

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,

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

2023 2022 2023 2022

22 unchanged sentences

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.

Pursuant to U.S.

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 nine months ended September 30, 2023.

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

16 unchanged sentences

The goodwill total of approximately $ 8.2 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 approximately $ 400 thousand of acquisition related costs that were expensed in the current period.

The Company recognized approximately $ 400 thousand of acquisition related costs that were expensed during the year.

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

NOTE 13 - SHARE REPURCHASES

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.

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

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

(in thousands, except share data) Three Months Ended September 30, 2023 Nine Months Ended September 30, 2023

Total number of shares purchased 618,282 1,706,637

1 unchanged sentence

Average price paid per share $ 34.79 $ 32.06

NOTE 14 - SUPPLEMENTAL CASH FLOW INFORMATION

Nine Months Ended September 30,

Supplemental disclosures of cash flow information:

Cash paid for interest $ 33,892 $ 16,253

Cash paid for income taxes $ 20,298 $ 12,220

Cash paid for finance lease liability

Shares issued for acquisition

Non-cash investing and financing activities:

Assets obtained in exchange for finance lease obligations

NOTE 15 - SUBSEQUENT EVENT

Senior Secured Term Loan B

On October 13, 2023, the Company entered into an amendment (the “Second Term Loan Amendment”) on its existing Senior Secured Term Loan B, borrowing an incremental $ 125 million that was added to the existing Senior Secured Term Loan B.

Including the new borrowings, the Company will have $ 550.0 million in Senior Secured Term Loan B borrowings.

The Term Loan B borrowings mature on October 30, 2030, and are priced at Term SOFR plus an applicable margin of 4.75 percent.

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