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Item 1. Business

2024-03-11 compared with 2023-04-17 · 91 added, 83 removed, 290 unchanged (38% of the section changed)

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The Company is 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").

Sales, operating income, and other financial information for 2023, 2022 and 2021, and identifiable assets at the close of such years for our business segments are presented in Note 2 0 – Segment Reporting to the Consolidated Financial Statements in Item 8.

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Our total sales have increased from $125 million in 1996 to $1.7 billion in 2023 through a combination of internal growth and business acquisitions.

At December 31, 2022, we operated from 180 locations which included 37 states in the U.S., nine provinces in Canada and one location in Dubai serving customers engaged locations and becoming customer driven experts in maintenance, repair and operating solutions.

At December 31, 2023, we operated from 183 locations which included 37 states in the United States ("U.S."), 9 provinces in Canada and one location in Dubai serving customers and becoming customer driven experts in maintenance, repair and operating solutions.

The following table shows, as of the end of the last 10 fiscal years, our consolidated sales;

the number of service centers, supply chain service sites, IPS facilities and the corresponding sales and average sales per business segment location:

total number of locations;

the number of SC locations, IPS facilities, SCS customer sites, and the corresponding sales and average sales per business segment location:

($ in millions) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Sales $ 1,500 $ 1,247 $ 962 $ 1,007 $ 1,216 $ 1,265 $ 1,005 $ 1,114 $ 1,481 $ 1,679

SC locations 178 185 179 167 165 155 145 158 152 160

SC Sales $ 885 $ 988 $ 827 $ 621 $ 641 $ 750 $ 762 $ 663 $ 816 $ 1,009

Sales / SC location 5.0 5.3 4.6 3.7 3.9 4.8 5.3 4.2 5.4 6.3

SCS Customer Sites 62 74 69 67 67 83 89 79 82 95

SCS Sales $ 148 $ 164 $ 166 $ 154 $ 161 $ 174 $ 201 $ 155 $ 158 $ 240

SCS Sales / Site 2.4 2.2 2.4 2.3 2.4 2.1 2.3 2.0 1.9 2.5

271 260 245 243 249 244 247 252 275 264

$ 988 $ 827 $ 621 $ 641 $ 750 $ 762 $ 663 $ 816 $ 1,009 $ 1,145

185 179 167 165 155 145 158 152 160 161

SC sales/location

$ 5.3 $ 4.6 $ 3.7 $ 3.9 $ 4.8 $ 5.3 $ 4.2 $ 5.4 $ 6.3 $ 7.1

$ 348 $ 255 $ 187 $ 204 $ 292 $ 304 $ 188 $ 140 $ 231 $ 273

IPS facilities

IPS Sales $ 209 $ 348 $ 255 $ 187 $ 204 $ 292 $ 304 $ 188 $ 140 $ 231

12 12 11 11 11 10 10 18 20 22

IPS sales/facility

Total Locations 250 271 260 245 243 249 244 247 252 275

$ 29.0 $ 21.3 $ 17.0 $ 18.5 $ 26.5 $ 30.4 $ 18.8 $ 7.8 $ 11.6 $ 12.4

$ 164 $ 166 $ 154 $ 161 $ 174 $ 201 $ 155 $ 158 $ 240 $ 260

SCS customer sites

74 69 67 67 83 89 79 82 95 81

SCS sales/site

$ 2.2 $ 2.4 $ 2.3 $ 2.4 $ 2.1 $ 2.3 $ 2.0 $ 1.9 $ 2.5 $ 3.2

Our principal executive office is located at 5301 Hollister St., Houston, Texas 77040 and our telephone number is (713) 996-4700.

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The industrial distribution market is highly fragmented.

Based on 2021 sales as reported by Industrial Distribution magazine, we were the 17 th largest distributor of MRO products in the United States.

Based on 2022 sales as reported by Industrial Distribution magazine, we were the 17 th largest distributor of MRO products in the U.S.

Most industrial customers currently purchase their industrial supplies through numerous local distribution and supply companies.

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The Company is organized into three business segments:

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

Our segments provide management with a comprehensive financial view of our key businesses.

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

Our segments provides the Chief Operating Decision Maker ("CODM") with a comprehensive financial view of our key businesses.

Our CODM is our Chief Executive Officer.

The segments enable the alignment of strategies and objectives and provide a framework for timely and rational allocation of resources within our businesses.

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Management Discussion and Analysis of Financial Condition and Results of Operations for further information on our segments’ financial results.

(in millions)

Segment 2022 Sales

Segment 2023 Sales (in millions)

% of Sales End Markets Locations Employees

SC $1,009.4 68.2% General Industrial, Oil & Gas, Food & Beverage, Water & Wastewater, Chemical & Petrochemical, Transportation, Aerospace 156 service centers, 4 distribution centers

IPS $231.1 15.6% Oil & Gas, Mining, Petrochemical, Water & Wastewater and Utilities 16 fabrication facilities, 4 wastewater locations

SCS $240.4 16.2% Food & Beverage, Transportation, Oil & Gas, General Industrial & Chemical 95 customer facilities'

SC $1,145 68% General Industrial, Oil & Gas, Food & Beverage, Water & Wastewater, Chemical, Transportation, Aerospace & Other

157 service centers, 4 distribution centers

IPS $273 16% Oil & Gas, Mining, Chemical, Water & Wastewater and Utilities

16 fabrication facilities, 6 wastewater locations

SCS $260 16% Food & Beverage, Transportation, Oil & Gas, General Industrial & Chemical 81 customer sites

Service Centers

The Service Centers are engaged in providing MRO products, equipment and services, including technical expertise and logistics capabilities, to a variety of customers serving varied end markets with the ability to provide same day delivery.

The Service Centers (SC) are engaged in providing MRO products, equipment and services, including technical expertise and logistics capabilities, to a variety of customers serving varied end markets with the ability to provide same day delivery.

We offer our customers a single source of supply on an efficient and competitive basis by being a first-tier distributor that can purchase products directly from manufacturers.

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The Company's Service Centers provide a wide range of MRO products in the rotating equipment, bearing, power transmission, hose, fluid power, metal working, industrial supply and safety product and service categories.

We currently serve as a first-tier distributor of more than 1,000,000 items of which more than 60,000 are stock keeping units (SKUs) for use primarily by customers engaged in the oil and gas, food and beverage, petrochemical, transportation and other general industrial industries.

Other industries served by our Service Centers include mining, construction, chemical, municipal, agriculture and pulp and paper.

The Service Centers segment’s long-lived assets are located in the United States, Canada and Dubai.

We currently serve as a first-tier distributor of more than 1,000,000 items of which more than 60,000 are stock keeping units (SKUs) for use primarily by customers engaged in the oil and gas, food and beverage, chemical and petrochemical, transportation and other general industrial industries.

Other industries served by our Service Centers include mining, construction, chemical, municipal water and wastewater, agriculture and pulp and paper.

The Service Centers segment’s long-lived assets are located in the U.S., Canada and Dubai.

Approximately 5.0% of the Service Centers segment’s revenues were in Canada and the remainder was virtually all in the U.S.

Our foreign operations are subject to certain unique risks, which are more fully disclosed in Item 1A “Risk Factors,” “Risks Associated with Legal and Regulatory Matters” .

At December 31, 2022, the Service Centers segment had approximately 1,651 employees, all of whom were full-time.

Our foreign operations are subject to certain unique risks, which are more fully disclosed in Item 1A " Risk Factors, " " Ris ks Associated with Legal and Regulatory Matters " .

At December 31, 2023, the Service Centers segment had 1,723 employees, all of whom were full-time.

Innovative Pumping Solutions

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Additionally, our IPS segment provides project solutions and capital equipment to the water and wastewater treatment markets including potable water, bio-solid and residual management and wastewater treatment.

Our IPS segment provides a single source for engineering, systems design and fabrication for unique customer specifications.

Our IPS segment provides a single source for design, engineering, project management and systems design and fabrication for unique customer specifications.

Our sales of integrated pump packages, remanufactured pumps or branded private label pumps are generally derived from customer purchase orders containing the customers’ unique specifications.

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The Company leverages its MRO product inventories and breadth of authorized products to lower the total cost and maintain the quality of our pump packages.

The Company's fabrication facilities provide convenient technical support and pump repair services.

Examples of our innovative pump packages include, but are not limited to:

• Diesel and electric driven fire and water packages

• Pipeline booster packages

• Potable water packages

• Pigging pump packages

• Lease Automatic Custody Transfer (LACT) charge units

• Chemical injection pump packages wash down units

• Seawater lift pump packages

• Seawater/produced water injection packages

• Variety of packages to meet customer required industry specifications such as API, ANSI and NFPA

At December 31, 2022, the Innovative Pumping Solutions segment operated out of 20 facilities, 18 of which are located in the United States and two in Canada.

At December 31, 2023, the Innovative Pumping Solutions segment operated out of 22 facilities, 20 of which are located in the U.S.

and two in Canada.

All of the IPS segment’s long-lived assets are located in the U.S.

Approximately 4.8% of the IPS segment’s 2023 revenues were recognized in Canada and 95.2% were in the U.S.

At December 31, 2022, the IPS segment had approximately 337 employees, all of whom were full-time.

At December 31, 2023, the IPS segment had 383 employees, all of whom were full-time.

Total backlog, representing firm orders for the IPS segment products that have been received and entered into our production systems, was $138.4 million and $108.5 million at December 31, 2023 and 2022, respectively.

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Unlike many other distributors who buy products from second-tier sources, the Company takes customers to the source of the products they need.

At December 31, 2022, the SCS segment operated supply chain installations in 95 of our customers’ facilities.

At December 31, 2023, the SCS segment operated supply chain installations in 81 of our customers’ sites.

All of the SCS segment’s long-lived assets are in the U.S.

and the majority of the SCS segment’s 2022 revenues were recognized in the U.S.

At December 31, 2022, the SCS segment had approximately 409 employees, all of whom were full-time.

The majority of the SCS segment’s 2023 revenues were recognized in the U.S.

At December 31, 2023, the SCS segment had 419 employees, all of whom were full-time.

Most industrial customers currently purchase their MRO products through local or national distribution companies that are focused on single or unique product categories.

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Given our breadth of product and our industrial distribution customers’ focus around specific product categories, we have become customer driven experts in five key product categories.

As such, our three business segments are supported by the following five key product categories:

Our business is supported by the following five key product categories:

rotating equipment;

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and safety products & services.

Each business segment tailors its inventory and leverages product experts to meet the needs of its local customers.

Key product categories that we offer include:

The Company tailors its inventory and leverages product experts to meet the needs of its local customers.

Our key product categories include:

• Rotating Equipment .

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Service revenues are less than 10% of sales.

The Company has operations in the United States of America, Canada and Dubai.

Information regarding financial data by geographic areas is set forth in Note 22 - Segment Reporting of the Notes to Consolidated Financial Statements.

The Company has operations in the U.S., Canada, Mexico, and Dubai.

Information regarding financial data by geographic areas is set forth in Note 19 - Revenue of the Notes to Consolidated Financial Statements.

Recent Acquisitions

A key component of our growth strategy includes acquiring businesses with complementary or desirable product lines, locations or customers.

Since 2004, we have completed 48 acquisitions across our three business segments.

Since 2004, we have completed 51 acquisitions.

The following briefly describes the Company’s acquisition activity for the years ended December 31, 2023 and December 31, 2022.

On November 1, 2023, the Company completed the acquisition of Alliance Pump & Mechanical Service, Inc.

(“Alliance”).

Alliance is a leading municipal and industrial pump sales, service, and repair business.

Alliance is included within our SC business segment.

Total consideration for the transaction was approximately $1.7 million, funded with a mixture of cash on hand of $1.5 million and contingent consideration of $0.2 million.

Goodwill for the transaction totaled approximately $1.3 million.

On May 1, 2023, the Company completed the acquisition of Florida Valve & Equipment, LLC and Environmental MD, Inc.

(collectively, “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 $3.3 million, funded with a mixture of cash on hand of $3.0 million and contingent consideration of $0.3 million.

Goodwill for the transaction totaled approximately $2.4 million.

On May 1, 2023, the Company completed the acquisition of Riordan Materials Corporation (“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 contingent consideration of $2.2 million.

Goodwill for the transaction totaled approximately $6.1 million.

On September 1, 2022, the Company completed the acquisition of Sullivan Environmental Technologies, Inc.

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Total consideration for the transaction was approximately $6.5 million, funded with a mixture of cash on hand of $4.6 million, the Company's common stock valued at approximately $0.9 million and contingent consideration of $1.0 million.

Goodwill for the transaction totaled approximately $2.5 million.

On May 2, 2022, the Company completed the acquisition of Cisco Air Systems, Inc.

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Cisco is included within our SC business segment.

Total consideration for the transaction was approximately $52.3 million, funded with a mixture of cash on hand of $32 million, the Company's common stock valued at approximately $4.4 million and a draw down of approximately $11 million on the ABL and contingent consideration of $4.5 million.

Total consideration for the transaction was approximately $52.3 million, funded with a mixture of cash on hand of $32 million, the Company's common stock valued at approximately $4.4 million, approximately $11 million on the ABL and contingent consideration of $4.5 million.

Goodwill for the transaction totaled approximately $30.5 million.

On March 1, 2022, the Company completed the acquisition of Drydon Equipment, Inc.

("Drydon"), a distributor and manufacturers’ representative of pumps, valves, controls and process equipment focused on serving the water and wastewater industry in the Midwest.

The acquisition of Drydon was funded with cash on hand and an issuance of DXP's common stock.

The Company paid approximately $7.9 million, funded with a mixture of cash on hand of $4.9 million, the Company's common stock valued at approximately $441 thousand and contingent consideration of $2.6 million.

A majority of Drydon's sales are project-based work.

As a result, Drydon has been included in the IPS business segment.

Drydon is included within our IPS business segment.

The Company paid approximately $7.9 million, funded with a mixture of cash on hand of $4.9 million, the Company's common stock valued at approximately $0.4 million and contingent consideration of $2.6 million.

Goodwill for the transaction totaled approximately $5.3 million.

On March 1, 2022, the Company completed the acquisition of certain assets of Burlingame Engineers, Inc.

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Burlingame is included within our SC business segment.

The Company paid approximately $1.1 million in cash, the Company's common stock and contingent consideration.

On September 20, 2021, the Company completed the acquisition of Premier Water LLC (“Premier”).

Premier is a leading distributor and provider of products and services exclusively focused on serving the water and wastewater treatment markets primarily in North and South Carolina.

Premier is included within our IPS business segment.The Company paid approximately $5.8 million in cash and stock.

On July 1, 2021, the Company completed the acquisition of Process Machinery, Inc.

(“PMI”), a leading distributor of pumps, mechanical seals, tank, filters and related process equipment that focuses on serving the chemical, power, pulp & paper, mining, metals and food processing industries.

PMI is included within our SC business segment.The Company paid approximately $9.6 million in cash, stock, and contingent consideration.

On April 30, 2021, the Company completed the acquisition of Carter & Verplanck, LLC (“CVI”), a distributor of products and services exclusively focused on serving the water and wastewater markets.

The acquisition of CVI was funded with cash on hand as well as issuing DXP's common stock.

The Company paid approximately $49.7 million in cash and stock.

A majority of CVI's sales are project-based work under the percentage-of-completion accounting model.

As a result, CVI has been included in the IPS segment.

The Company paid approximately $1.1 million including cash, the Company's common stock and contingent consideration.

Goodwill for the transaction totaled approximately $0.5 million.

Our business is highly competitive.

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While certain catalog distributors provide product offerings as broad as ours, these competitors do not offer the product application, technical expertise and after-the-sale services that we provide.

In the Supply Chain Services segment we compete with larger distributors that provide integrated supply programs and outsourcing services, some of which might be able to supply their products in a more efficient and cost-effective manner than we can provide.

In the Innovative Pumping Solutions segment we compete against a variety of manufacturers, distributors and fabricators, many of which may have greater financial and other resources than we do.

We generally compete on expertise, responsiveness and price in all of our segments.

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Human Capital

The Company employed 2,675 people as of December 31, 2022 with approximately 2,433 people located in the United States and 242 people located in Canada and other countries where the Company's business operates.

The Company employed 2,837 people as of December 31, 2023.

The Company is continually investing in its workforce to further talent development, increase employee safety, drive a strong workplace culture, improve compensation and benefits and diversity and inclusion to support our employees’ well-being, and foster their growth and development.

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and (iv) continuous improvement philosophy.

Consistent with these commitments, employee health and safety has been a top priority during the COVID-19 pandemic.

Among its many actions and initiatives, the Company redesigned processes to ensure proper social distancing practices, adjusted shift schedules and assignments to help colleagues who have child and elder care needs and implemented aggressive workplace sanitation practices and a coordinated response to ensure access to personal protective equipment to minimize infection risk.

Workplace Culture.

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employees are represented by a labor union, while outside the U.S., employees in certain countries are represented by an employee representative organization, such as a union, works council or employee association.

We believe our employees are key to achieving our business objectives.

The Company considers its employee relations to be excellent.

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Supply Chain Services 419 Other (1)

Corporate 278

Total Employees 2,675 Total Employees 2,675

We believe our employees are key to achieving our business objectives.

Throughout the COVID-19 pandemic crisis, we continued to operate our business despite the challenges that arose from closing offices and operating our branch locations.

Our use of technology and third party conferencing platforms enabled our office employees to work from home, performing their job functions with little to no loss of productivity.

We required our employees to work from home as a result of governmental stay-at-home orders and, in many cases, in advance of those orders for the health and safety of our employees.

For the most part, our warehouses and regional distribution centers remained open.

Under various shelter-in place orders by national, state, provincial and local governments, we were exempted as an “essential” business as the products we sell are necessary for the maintenance and functioning of the energy infrastructure and other industries.

We took measures to safeguard the health and welfare of our employees.

As various governmental isolation orders were lifted or phased out, we modified our operational plans to continue operating our business while addressing the health and safety of our employees.

Corporate 312 Total Employees 2,837

Total Employees 2,837 (1) Includes employees located in Mexico and Dubai.

Executive Officers

The following is a list of the Company's executive officers, their age, positions, and a description of each officer’s business experience as of April 17, 2023.

The following is a list of the Company's executive officers, their age, positions, and a description of each officer’s business experience as of March 11, 2024.

All of our executive officers hold office at the pleasure of the Company's Board of Directors.

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Jeffery 56 Senior Vice President/Supply Chain Services

Todd Hamlin 51 Senior Vice President/Service Centers

Todd Hamlin (1)

52 Senior Vice President/Service Centers

David Molero Santos

42 Vice President/Chief Accounting Officer

(1) On January 26, 2024 Mr.

Hamlin departed the Company.

Little has served as Chairman of the Board, President and Chief Executive Officer of DXP since its organization in 1996 and also has held these positions with SEPCO Industries, Inc., predecessor to the Company (“SEPCO”), since he acquired a controlling interest in SEPCO in 1986.

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During March 2011, Mr.

Yee joined DXP from Stephens Inc.'s Industrial Distribution and Services team where he served in various positions and most recently as Vice President from August 2005 to February 2011.

Yee joined DXP from Stephens Inc.'s Industrial Distribution and Services team where he served in various positions, including Vice President from August 2005 to February 2011.

Prior to Stephens, Mr.

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Hamlin was elected to the Bearing Specialists Association’s Board of Directors.

David Molero Santos.

Molero is a certified public accountant and has over 18 years of experience in accounting within a public company environment and most recently as a Chief Accounting Officer of another publicly traded company.

Prior to DXP, Mr.

Molero was the Chief Accounting Officer for AgileThought, Inc., a provider of digital transformation services including organizational transformations, training and certifications, and product management services.

He spent over 16 years at PricewaterhouseCoopers serving in various audit and capital markets advisory roles, focused primarily on SEC reporting clients.

Molero is a Certified Public Accountant in Texas and holds a Bachelor’s degree in Business Administration and Management from Loyola University in Cordoba (Spain) and a Master’s degree in Audit from the University of Alcala in Madrid (Spain).

All officers of DXP hold office until the regular meeting of the board of directors following the 2024 Annual Meeting of Shareholders or until their respective successors are duly elected and qualified or their earlier resignation or removal.

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Our internet address is www.dxpe.com and the investor relations section of our website is located at ir.dxpe.com.

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended (the “Exchange Act”), are available free of charge through our Internet website ( www.dxpe.com ) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended (the “Exchange Act”), are available free of charge through our internet website ( www.dxpe.com ) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S.

Securities and Exchange Commission (“SEC”).

The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with SEC at http://www.sec.gov.

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• Audit Committee Charter

• Corporate Sustainability Report

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-K

Item 1. Business