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Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-09 · 173 added, 66 removed, 165 unchanged (59% of the section changed)

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

together with its subsidiaries (collectively "DXP," "Company," "us," "we," or "our") for the three and six months ended June 30, 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 US GAAP.

together with its subsidiaries (collectively "DXP," "Company," "us," "we," or "our") for the three and nine months ended September 30, 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 U.S.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

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Unless the context otherwise requires, references in this Report to the "Company", "DXP", "we" or "our" shall mean DXP Enterprises, Inc., a Texas corporation, together with its subsidiaries.

CURRENT MARKET CONDITIONS AND OUTLOOK

NON-GAAP FINANCIAL MEASURES

In an effort to provide investors with additional information regarding our results of operations as determined by accounting principles generally accepted in the United States of America ("U.S.

GAAP"), we disclose non-GAAP financial measures.

The non-GAAP financial measures we provide in this report should be viewed in addition to, and not as an alternative for, results prepared in accordance with U.S.

Our primary non-GAAP financial measures are organic sales ("Organic Sales"), sales per business day ("Sales per Business Day"), organic sales per business day ("Organic Sales per Business Day"), free cash flow ("Free Cash Flow"), earnings before interest, taxes, depreciation and amortization ("EBITDA") adjusted EBITDA ("Adjusted EBITDA"), EBITDA Margin, and Adjusted EBITDA Margin.

The non-GAAP financial measures presented may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures in the same way.

These measures are not substitutes for their comparable U.S.

GAAP financial measures.

Management uses these non-GAAP financial measures to assist in comparing our performance on a consistent basis for purposes of business decision making by removing the impact of certain items that management believes do not directly reflect our underlying operations.

Management believes that presenting our non-GAAP financial measures are useful to investors because it (i) provides investors with meaningful supplemental information regarding financial performance by excluding certain items, (ii) permits investors to view performance using the same tools that management uses to budget, make operating and strategic decisions, and evaluate historical performance, and (iii) otherwise provides supplemental information that may be useful to investors in evaluating our results.

We believe that the presentation of these non-GAAP financial measures, when considered together with the corresponding U.S.

GAAP financial measures and the reconciliations to those measures, provides investors with additional understanding of the factors and trends affecting our business than could be obtained absent these disclosures.

Refer to the Non-GAAP Financial Measures and Reconciliation section below for detailed reconciliations of our non-GAAP financial measures.

GENERAL BUSINESS OVERVIEW

DXP Enterprises, Inc.

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

Key Business Metrics

We regularly monitor several financial and operating metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.

Our key non-GAAP business metrics may be calculated in a different manner than similarly titled metrics used by other companies.

See “Non-GAAP Financial Measures and Reconciliations” for additional information on non-GAAP financial measures and a reconciliation to the most comparable GAAP measures.

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

2023 2022 2023 2022

Sales by Business Segment

Service Centers $ 294,458 $ 260,083 $ 888,116 $ 729,977

Innovative Pumping Solutions 58,963 59,044 184,402 169,890

Supply Chain Services 65,828 68,187 199,038 174,670

Total DXP Sales $ 419,249 $ 387,314 $ 1,271,556 $ 1,074,537

Acquisition Sales 3,868 15,916 30,266 38,273

Organic Sales $ 415,381 $ 371,398 $ 1,241,290 $ 1,036,264

Business Days 63 64 191 191

Sales per Business Day $ 6,655 $ 6,052 $ 6,657 $ 5,626

Organic Sales per Business Day $ 6,593 $ 5,803 $ 6,499 $ 5,425

Gross Profit $ 125,562 $ 111,633 $ 382,455 $ 310,779

Gross Profit Margin 29.9 % 28.8 % 30.1 % 28.9 %

EBITDA $ 42,605 $ 32,467 $ 129,681 $ 92,402

EBITDA Margin 10.2 % 8.4 % 10.2 % 8.6 %

Adjusted EBITDA $ 44,020 $ 34,324 $ 132,443 $ 95,396

Adjusted EBITDA Margin 10.5 % 8.9 % 10.4 % 8.9 %

Free Cash Flow

$ 38,272 $ (5,010) $ 56,672 $ (1,170)

Organic Sales and Acquisition Sales

We define and calculate organic sales to include locations and acquisitions under our ownership for at least twelve months.

"Acquisition Sales" are sales from acquisitions that have been under our ownership for less than twelve months and are excluded in our calculation of Organic Sales.

Business Days

"Business Days" are days of the week, excluding Saturdays, Sundays, and holidays, that our locations are open during the year.

Depending on the location and the season, our branches may be open on Saturdays and Sundays;

however, for consistency, those days have been excluded from the calculation of Business Days.

Sales per Business Day

We define and calculate Sales per Business Day as sales divided by the number of Business Days in the relevant reporting period.

Organic Sales per Business Days

We define and calculate Organic Sales per Business Day as Organic Sales divided by the number of Business Days in the relevant reporting period.

EBITDA and Adjusted EBITDA

We define and calculate EBITDA as Net income attributable to DXP Enterprises, Inc., plus interest, taxes, depreciation, amortization, and non-controlling interest.

We define and calculate Adjusted EBITDA as Net income attributable to DXP Enterprises, Inc., plus interest, taxes, depreciation, amortization minus stock-based compensation expense, non-controlling interest before taxes and all other non-cash charges, adjustments, and non-recurring items.

We identify the impact of all other non-cash charges, adjustments and non-recurring items because we believe these items do not directly reflect our underlying operations.

EBITDA Margin and Adjusted EBITDA Margin

We define and calculate EBITDA Margin as EBITDA divided by sales.

We define and calculate Adjusted EBITDA Margin as Adjusted EBITDA divided by sales.

Free Cash Flow

We define and calculate free cash flow as net cash (used in) provided by operating activities less net purchases of property and equipment.

CURRENT MARKET CONDITIONS AND OUTLOOK

Inflation Reduction Act

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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 six months ended June 30, 2023.

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, 2023.

Service Centers and Innovative Pumping Solutions Segments

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

For the three months ended June 30, 2023 and six months ended June 30, 2023, we had approximately $361.9 million and $719.1 million in sales in our Service Centers and Innovative Pumping Solutions segments, an increase of approximately 17.2 percent and 23.8 percent compared to the three months ended June 30, 2022 and the six months ended June 30, 2022, respectively.

Our performance has been strengthened by price increases from our vendors and suppliers During the six months ended June 30, 2023, $7.3 million was associated with recent acquisitions in the water and wastewater markets.

For the three months ended September 30, 2023 and nine months ended September 30, 2023, we had approximately $353.4 million and $1,072.5 million in sales in our Service Centers and Innovative Pumping Solutions segments, an increase of approximately 10.7 percent and 19.2 percent compared to the three months ended September 30, 2022 and the nine months ended September 30, 2022, respectively.

Our performance has been strengthened by price increases from our vendors and suppliers During the nine months ended September 30, 2023, $11.2 million was associated with recent acquisitions in the water and wastewater markets.

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

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Supply Chain Services Segment

For the three months ended June 30, 2023 and six months ended June 30, 2023, we had approximately $66.2 million and $133.2 million in sales in our Supply Chain Services segment, an increase of approximately 12.3 percent and 25.1 percent compared to the three months ended June 30, 2022 and the six months ended June 30, 2022, respectively.

Our performance compared to the previous six month period has benefited from the addition of a new diversified chemical customer that recently reach its one-year anniversary during the second quarter of 2023.

For the three and nine months ended September 30, 2023, we had approximately $65.8 million and $199.0 million in sales in our Supply Chain Services segment, respectively, a decrease of approximately 3.5 percent and an increase of 14.0 percent compared to the three and nine months ended September 30, 2022, respectively.

Our performance compared to the previous nine month period has benefited from the addition of a new diversified chemical customer that recently reached its one-year anniversary during the second quarter of 2023.

As we move forward, we expect our performance to be driven by either the addition of new customers or an increase in spend by our existing customers.

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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.

Three Months Ended June 30,

Three Months Ended September 30,

2023 % 2022 %

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Diluted earnings per share $ 0.93 $ 0.71

Three Months Ended June 30, 2023 compared to Three Months Ended June 30, 2022

Sales for the three months ended June 30, 2023 increased $60.2 million, or 16.4 percent, to approximately $428.0 million from $367.8 million for the prior year's corresponding period.

Sales from acquisitions for three months ended June 30, 2023, accounted for $7.3 million compared to $17.8 million for the three months ended June 30, 2022.

The overall increase in sales was the result of an increase in sales in our SC, IPS and SCS segments of $47.3 million, $5.7 million, and $7.2 million, respectively.

Three Months Ended September 30, 2023 compared to Three Months Ended September 30, 2022

Sales for the three months ended September 30, 2023 increased $31.9 million, or 8.2 percent, to approximately $419.2 million from $387.3 million for the prior year's corresponding period.

Sales from acquisitions for the three months ended September 30, 2023, accounted for $3.9 million .

The overall increase in sales was the result of an increase in sales in our SC segment of $34.4 million partially offset by decreases in sales in our SCS and IPS segments of $2.4 million and $0.1 million, respectively.

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

Three Months Ended June 30,

Three Months Ended September 30,

2023 2022 Change Change%

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

Sales by Business Segment

Service Centers $ 294,458 $ 260,083 $ 34,375 13.2 %

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Service Centers segment.

Sales for the SC segment increased by approximately $47.3 million, or 18.9 percent, for the three months ended June 30, 2023, compared to the prior year's corresponding period.

Sales from acquisitions for the SC segment was $4.5 million during the three months ended June 30, 2023 compared to $12.5 million for the three months ended June 30, 2022.

Total sales for the SC segment excluding acquisitions increased $55.4 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 a variety of end markets.

Innovative Pumping Solutions segment .

Sales for the IPS segment increased by $5.7 million, or 9.8 percent, for the three months ended June 30, 2023, compared to the prior year's corresponding period.

Sales from acquisitions for the IPS segment was $2.8 million during the three months ended June 30, 2023 compared to $5.3 million for the three months ended June 30, 2022.

Total sales for the IPS segment excluding acquisitions increased $8.1 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 renewable sectors.

Sales for the SC segment increased by approximately $34.4 million, or 13.2 percent, for the three months ended September 30, 2023, compared to 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.

Supply Chain Services segment.

Sales for the SCS segment increased by $7.2 million, or 12.3 percent, for the three months ended June 30, 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.

Sales for the SCS segment decreased by $2.4 million, or 3.5 percent, for the three months ended September 30, 2023, compared to the prior year's corresponding period.

The decrease in sales was primarily the result of facility closures with existing customers.

GROSS PROFIT.

Gross profit as a percentage of sales for the three months ended June 30, 2023 was 30.8 percent versus 28.3 percent in the prior year's corresponding period.

The increase in the gross profit percentage is primarily the result of an increase in gross profit within our IPS segment in our water/wastewater division.

Gross profit as a percentage of sales for the three months ended September 30, 2023 was 29.9 percent versus 28.8 percent in the prior year's corresponding period.

The increase in the gross profit percentage is primarily the result of an increase in gross profit within our SC and IPS segments.

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

SG&A for the three months ended June 30, 2023 increased by approximately $16.0 million, or 20.5 percent, to $94.4 million from $78.3 million for the prior year's corresponding period.

SG&A for the three months ended September 30, 2023 increased by approximately $4.6 million, or 5.4 percent, to $89.7 million from $85.1 million for the prior year's corresponding period.

The increase in SG&A is primarily the result of increased payroll, incentive compensation and related taxes and 401(k) expenses as a result of increased business activity.

OPERATING INCOME.

Operating income for the second quarter of 2023 increased by $11.6 million to $37.5 million, from $25.9 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.

Operating income for the third quarter of 2023 increased by $9.3 million to $35.9 million, from $26.5 million in the prior year's corresponding period.

This increase in operating income is the result of the aforementioned increase in business activity across all segments.

INTEREST EXPENSE.

Interest expense for the second quarter of 2023 increased $6.2 million compared to the prior year's corresponding period.

Interest expense for the third quarter of 2023 increased $5.9 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 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.

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INCOME TAXES.

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.

Six Months Ended June 30, 2023 compared to Six Months Ended June 30, 2022

Six Months Ended June 30,

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.

Nine Months Ended September 30, 2023 compared to Nine Months Ended September 30, 2022

Nine Months Ended September 30,

2023 % 2022 %

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Diluted earnings per share $ 2.94 $ 2.10

Sales for the six months ended June 30, 2023 increased $165.1 million, or 24.0 percent, to approximately $852.3 million from $687.2 million for the prior year's corresponding period.

Sales from businesses acquired accounted for $26.4 million of sales for the six months ended June 30, 2023 compared to $30.9 million for the six months ended June 30, 2022 .

Sales for the nine months ended September 30, 2023 increased $197.0 million, or 18.3 percent, to approximately $1,271.6 million from $1,074.5 million for the prior year's corresponding period.

Sales from businesses acquired accounted for $30.3 million of sales for the nine months ended September 30, 2023.

The overall increase in sales was the result of an increase in sales within our SC, IPS and SCS segments of $158.1 million, $14.5 million and $24.4 million, respectively.

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

Six Months Ended June 30,

Nine Months Ended September 30,

2023 2022 Change Change%

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Service Centers segment.

Sales for the SC segment increased by $123.8 million, or 26.3 percent for the six months ended June 30, 2023, compared to the prior year's corresponding period.

Sales from acquisitions for the SC segment was $19.1 million during the six months ended June 30, 2023 compared to $16.5 million for the six months ended June 30, 2022.

Sales for the SC segment increased by $158.1 million, or 21.7 percent for the nine months ended September 30, 2023, compared to the prior year's corresponding period.

Sales from acquisitions for the SC segment was $19.1 million during the nine months ended September 30, 2023.

Total sales for the SC segment excluding acquisitions increased $139.0 million from the prior year's corresponding period.

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Innovative Pumping Solutions segment .

Sales for the IPS segment increased by $14.6 million, or 13.2 percent for the six months ended June 30, 2023 compared to the prior year's corresponding period.

Sales from acquisitions for the IPS segment was $7.3 million during the six months ended June 30, 2023 compared to $14.4 million for the six months ended June 30, 2022.

Sales for the IPS segment increased by $14.5 million, or 8.5% for the nine months ended September 30, 2023 compared to the prior year's corresponding period.

Sales from acquisitions for the IPS segment was $11.2 million during the nine months ended September 30, 2023.

Total sales for the IPS segment excluding acquisitions increased $3.4 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 renewable

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

Supply Chain Services segment.

Sales for the SCS segment increased by $26.7 million, or 25.1 percent, for the six months ended June 30, 2023, compared to the prior year's corresponding period.

Sales for the SCS segment increased by $24.4 million, or 14.0 percent, for the nine months ended September 30, 2023, compared to the prior year's corresponding period.

GROSS PROFIT.

Gross profit as a percentage of sales for the six months ended June 30, 2023 increased by approximately 116 basis points from the prior year's corresponding period.

The increase in the gross profit percentage is primarily the result of an approximate 113 basis points and 335 basis points increase in the gross profit percentage in our SC and IPS segments partially offset by an approximate 72 basis points decrease in our SCS segment, respectively.

Gross profit as a percentage of sales for the nine months ended September 30, 2023 increased by approximately 116 basis points from the prior year's corresponding period.

The increase in the gross profit percentage is primarily the result of an approximate 91 basis points and 363 basis points increase in the gross profit percentage in our SC and IPS segments, respectively, partially offset by an approximate 48 basis points decrease in our SCS segment.

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

SG&A for the six months ended June 30, 2023 increased by approximately $32.3 million, or 21.3 percent, to $184.0 million from $151.7 million for the prior year's corresponding period.

SG&A for the nine months ended September 30, 2023 increased by approximately $37.0 million, or 15.6 percent, to $273.7 million from $236.8 million for the prior year's corresponding period.

The increase in SG&A is primarily the result of increased payroll, incentive compensation and related taxes and 401(k) expenses as a result of increased business activity.

OPERATING INCOME.

Operating income for the six months ended June 30, 2023 increased by $25.4 million or 53.5% to $72.9 million from $47.5 million in the prior year's corresponding period.

Operating income for the nine months ended September 30, 2023 increased by $34.7 million or 46.9% to $108.7 million from $74.0 million in the prior year's corresponding period.

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

INTEREST EXPENSE.

Interest expense for the six months ended June 30, 2023 increased $12.6 million compared with the prior year's corresponding period.

Interest expense for the nine months ended September 30, 2023 increased $18.5 million compared with the prior year's corresponding period.

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INCOME TAXES.

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.

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.

NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS

Organic Sales and Acquisition Sales

We define and calculate organic sales to include locations and acquisitions under our ownership for at least twelve months.

"Acquisition Sales" are sales from acquisitions that have been under our ownership for less than twelve months and are excluded in our calculation of Organic Sales.

The following table sets forth the reconciliation of Acquisition Sales and Organic Sales to the most comparable U.S.

GAAP financial measure (in thousands) :

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

2023 2022 2023 2022

Service Centers $ 294,458 $ 260,083 $ 888,116 $ 729,977

Innovative Pumping Solutions 58,963 59,044 184,402 169,890

Supply Chain Services 65,828 68,187 199,038 174,670

Total DXP Sales 419,249 387,314 1,271,556 1,074,537

Acquisition Sales 3,868 15,916 30,266 38,273

Organic Sales $ 415,381 $ 371,398 $ 1,241,290 $ 1,036,264

EBITDA, Adjusted EBITDA, EBITDA Margin, and Adjusted EBITDA Margin

We define and calculate EBITDA as Net income attributable to DXP Enterprises, Inc., plus interest, taxes, depreciation, amortization, and non-controlling interest.

We identify the impact of all other non-cash charges, adjustments and non-recurring items because we believe these items do not directly reflect our underlying operations.

We define and calculate EBITDA Margin as EBITDA divided by sales.

We define and calculate Adjusted EBITDA Margin as Adjusted EBITDA divided by sales.

The following table sets forth the reconciliation of EBITDA, EBITDA Margin, Adjusted EBITDA, and Adjusted EBITDA Margin to the most comparable U.S.

GAAP financial measure (in thousands) :

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

2023 2022 2023 2022

Net income attributable to DXP Enterprises, Inc.

$ 16,172 $ 13,929 $ 52,806 $ 41,003

Net loss attributable to non-controlling interest

— ( 885 ) — ( 938 )

Interest expense

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

Provision for income taxes

5,766 5,097 19,339 13,402

Depreciation and amortization

7,983 7,493 21,468 21,325

EBITDA $ 42,605 $ 32,467 $ 129,681 $ 92,402

NCI income (loss) before tax (1)

other non-recurring items (2)

551 1,193 551 1,193

stock compensation expense 864 505 2,211 1,368

Adjusted EBITDA $ 44,020 $ 34,324 $ 132,443 $ 95,396

Operating Income Margin 8.6 % 6.9 % 8.6 % 6.9 %

EBITDA Margin 10.2 % 8.4 % 10.2 % 8.6 %

Adjusted EBITDA Margin 10.5 % 8.9 % 10.4 % 8.9 %

(1) NCI represents non-controlling interest.

(2) Other non-recurring items includes the loss associated with closing an international location for the three and nine months ended September 30, 2023 and the loss associated with the sale of a VIE for the three and nine months ended September 30, 2022.

Free Cash Flow

We define and calculate free cash flow as net cash (used in) provided by operating activities less net purchases of property and equipment.

The following table sets forth the reconciliation of Free Cash Flow to the most comparable U.S.

GAAP financial measure (in thousands) :

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

2023 2022 2023 2022

Net cash provided by (used in) operating activities

$ 39,758 $ (3,432) $ 63,775 $ 2,256

purchases of property and equipment (1,486) (1,578) ( 7,103 ) (3,426)

Free Cash Flow

$ 38,272 $ (5,010) $ 56,672 $ (1,170)

LIQUIDITY AND CAPITAL RESOURCES

General Overview

As of June 30, 2023, we had cash and restricted cash of $15.6 million and credit facility availability of $132.3 million.

As of September 30, 2023, we had cash and restricted cash of $27.3 million and credit facility availability of $131.9 million.

We have a $135.0 million asset-backed line of credit (the "ABL Revolver"), partially offset by letters of credit of $3.1 million.

We had no borrowings outstanding on our ABL Revolver as of June 30, 2023.

We had $425.9 million in borrowings on our Term Loan as of June 30, 2023.

We had no borrowings outstanding on our ABL Revolver as of September 30, 2023.

We had $424.9 million in borrowings on our Term Loan as of September 30, 2023.

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) :

Six Months Ended June 30,

Nine Months Ended September 30,

Net Cash Provided by (Used in):

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Operating Activities

The Company generated $24.0 million of cash from operating activities during the six months ended June 30, 2023 compared to $5.7 million of cash generated during the prior year's corresponding period.

The Company generated $63.8 million of cash from operating activities during the nine months ended September 30, 2023 compared to $2.3 million of cash generated during the prior year's corresponding period.

The $61.5 million increase in the amount of cash provided by operating activities between the two periods was primarily due to increased business activity and higher sales at a higher margin partially offset by a decrease of progress billings as compared to the prior period.

Investing Activities

For the six months ended June 30, 2023, net cash used in investing activities was $14.1 million compared to a $46.0 million use of cash during the prior year’s corresponding period.

This $31.9 million decrease was primarily driven by a reduction in the total purchase price paid for acquisitions during the six months ended June 30, 2023 of $8.5 million compared to $44.1 million during the six months ended June 30, 2022.

The decrease was partially offset by purchases of property and equipment of $5.6 million for the six months ended June 30, 2023 compared to $1.8 million for the six months ended June 30, 2022.

For the nine months ended September 30, 2023, net cash used in investing activities was $16.0 million compared to a $51.9 million use of cash during the prior year’s corresponding period.

This $36.0 million decrease was primarily driven by a reduction in the total purchase price paid for acquisitions during the nine months ended September 30, 2023 of $8.8 million compared to $48.5 million during the nine months ended September 30, 2022.

The decrease was partially offset by purchases of property and equipment of $7.1 million for the nine months ended September 30, 2023 compared to $3.4 million for the nine months ended September 30, 2022.

Financing Activities

For the six months ended June 30, 2023, net cash used in financing activities was $40.2 million, compared to net cash provided by financing activities of $12.0 million during the prior year’s corresponding period.

The increase was primarily due to an increase of $33.6 million in share repurchases for the six months ended June 30, 2023 compared to $15.1 million for the six months ended June 30, 2022.

During the six months ended June 30, 2022, the Company had $29.1 million outstanding under the ABL Revolver compared to no borrowings outstanding during the six months ended June 30, 2023.

The Company paid contingent consideration of $4.0 million for the six months ended June 30, 2023 without comparable activity in the prior period.

For the nine months ended September 30, 2023, net cash used in financing activities was $66.7 million, compared to net cash provided by financing activities of $18.3 million during the prior year’s corresponding period.

The increase was primarily due to share repurchases of $56.2 million for the nine months ended September 30, 2023 compared to $18.5 million for the nine months ended September 30, 2022.

During the nine months ended September 30, 2022, the Company had $40.6 million outstanding under the ABL Revolver compared to no borrowings outstanding during the nine months ended September 30, 2023.

The Company paid contingent consideration of $5.1 million for the nine months ended September 30, 2023 compared to $0.5 million for the nine months ended September 30, 2022.

Funding Commitments

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These policies have been discussed with the Audit Committee of the Board of Directors of DXP.

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

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 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.

RECENT ACCOUNTING PRONOUNCEMENTS

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What changed 10-Q

Item 2. Management’s Discussion and Analysis