What changed in this filing

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Item 1A. Risk Factors

2024-03-11 compared with 2023-04-17 · 62 added, 42 removed, 218 unchanged (32% of the section changed)

14 unchanged sentences

• Our manufacturers may cancel our oral or written distribution authorizations upon little or no notice, which could adversely impact our revenues and profits from distributing certain manufacturer’s products.

• We may experience unexpected supply shortages, which could adversely affect our product and service offerings and our business.

• Price reductions by our manufacturers of products that we sell could cause the value of our inventory to decline.

• We are subject to increased shipping costs as well as the potential inability of our third-party transportation providers to deliver products on a timely basis.

11 unchanged sentences

Market and Economy

• The COVID-19 pandemic has and could continue to result in disruptions in supply chain, decreased customer demand, lower oil price and volatility in the stock market and the global economy, which could negatively impact our business, financial position, and results of operations.

• A general slowdown in the economy could negatively impact the Company’s sales growth and profitability.

6 unchanged sentences

• A deterioration in the oil and gas sector or other circumstances may negatively impact our business and results of operations and thus hinder our ability to comply with financial covenants under our credit facilities, including the Secured Leverage Ratio and Fixed Charge Coverage Ratio financial covenants.

• Changes in our credit profile may affect our relationship with our suppliers, which could have a material adverse effect on our liquidity.

Legal and Regulatory

2 unchanged sentences

• We are subject to potential shareholder litigation associated with potential volatile trading of our common stock.

• We are subject to personal injury and product liability claims involving allegedly defective products.

• We are subject to personal injury, product liability and environmental claims involving allegedly defective products.

• We are subject to risks associated with conducting business in foreign countries.

• We are subject to environmental, health and safety laws and regulations.

• We are subject to environmental, health and safety laws and regulations that may lead to liabilities and negatively impact our business.

• We are subject to various government regulations, the cost of compliance of such regulations could increase our cost of conducting business and any violations of such regulations could materially adversely affect our financial condition or results of operations.

12 unchanged sentences

If certain manufacturers cancel the distribution authorizations they granted to us, our distribution of their products could be disrupted and such occurrence could have a material adverse effect on our results of operations and financial conditions.

We may experience unexpected supply shortages, which could adversely affect our product and service offerings and our business.

We distribute products from certain manufacturers and suppliers.

Nevertheless, in the future we may have difficulty obtaining the products we need from suppliers and manufacturers as a result of unexpected demand, production difficulties that might extend lead times or a supplier’s decision to sell its products through other distributors.

Our inability to obtain products from suppliers and manufacturers in sufficient quantities to meet customer demand, or at all, could adversely affect our product and service offerings and our business.

Price reductions by our manufacturers of products that we sell could cause the value of our inventory to decline.

Also, these price reductions could cause our customers to demand lower sales prices for these products, possibly decreasing our margins and profitability on sales.

The value of our inventory could decline as a result of manufacturer price reductions with respect to products that we sell.

Such a decline could have an adverse effect on our revenues.

Also, decreases in the market prices of products that we sell could cause customers to demand lower sales prices from us.

These price reductions could reduce our margins and profitability on sales with respect to the lower-priced products to the extent that we purchased our inventory of these products at the higher prices prior to the manufacturers price reductions.

Reductions in our margins and profitability on sales could have a material adverse effect on our business.

We rely upon third-party transportation providers for our merchandise shipments and are subject to increased shipping costs as well as the potential inability of our third-party transportation providers to deliver products on a timely basis.

37 unchanged sentences

Goodwill and intangibles represent a significant amount of our total assets.

As of December 31, 2022, our combined goodwill and intangible assets amounted to $413.3 million, net of accumulated amortization.

At December 31, 2023, our combined goodwill and intangible assets amounted to $407.9 million, net of accumulated amortization.

To the extent we do not generate sufficient cash flows to recover the net amount of any investments in goodwill and other intangible assets recorded, the investment could be considered impaired and subject to write-off which would directly impact earnings.

13 unchanged sentences

Despite our security measures and those of our third-party service providers, our systems may be vulnerable to interruption or damage from computer hacks, computer viruses, worms or other destructive or disruptive software, process breakdowns, denial of service attacks, malicious social engineering or other malicious activities, or any combination of the foregoing.

Our computer systems have been, and will likely continue to be, subject to attack.

Our computer systems have been, and will likely continue to be, subject to cyber incidents.

A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information resources.

More specifically, a cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to systems to disrupt operations, corrupt data or steal confidential information.

Our three primary risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to our reputation and image and private data exposure.

For example, in August 2020, the Company’s computer network was the target of a cyber-attack that we believe was orchestrated by a foreign actor.

1 unchanged sentence

The costs incurred to remedy the breach were not material to the results of the Company, and the increased cost of future mitigating measures are not expected to be material to our results.

However, in the future, if we suffer a more significant cyber incident, we may be required to shut off our computer systems, reboot them and reestablish our information from back up sources.

In other future incidents, we may be required under various laws to notify any third parties whose data has been compromised.

While we have implemented controls and taken other preventative actions to further strengthen our systems against future attacks, these controls and preventative actions may not be effective against future attacks.

Any breach of network;

information systems, our data security could result in a disruption of our services or improper disclosure of personal data or confidential information, which could harm our reputation, require us to expend resources to remedy such a security breach or defend against further attacks or subject us to liability under laws that protect personal data, resulting in increased operating costs or loss of revenue.

Any breach of network, information systems, or our data security could result in a disruption of our services or improper disclosure of personal data or confidential information, which could harm our reputation, require us to expend resources to remedy such a security breach or defend against further attacks or subject us to liability under laws that protect personal data, resulting in increased operating costs or loss of revenue.

Our backlog is subject to unexpected adjustments and potential cancellations

24 unchanged sentences

If we do not successfully remediate our internal controls weaknesses, our financial statements may not be accurate and the trading price of our stock could be negatively impacted.

As a public company, DXP Enterprises, Inc.

is subject to an annual integrated audit (an audit of its financial statements and system of controls).

The integrated audit expresses itself in two opinions covering the procedures and records used to produce the financial statements, i.e.

the financial statement audit, and, also an opinion as to whether the company has the likelihood, possibility, or existence of a misstatement in its financial statements based upon the interplay between financial, operational and technology processes and systems, i.e.

the Sarbanes-Oxley or “SOX” audit (see Item 8 and Item 9A for these opinions).

Specifically, section 404 of the Sarbanes-Oxley Act requires us to annually evaluate our internal control systems over financial reporting, which is an assessment of financial and operational processes as well as a review of the technology processes and systems.

This is not a static process as we may change our processes each year or acquire new companies that have different controls than our existing controls.

Upon completion of this process each year, we may identify control deficiencies of varying degrees of severity under applicable U.S.

Securities and Exchange Commission (“SEC”) and Public Company Accounting Oversight Board (“PCAOB”) rules and regulations that are neither new, and or remain unremediated from previous annual assessments due to ongoing curing efforts.

We are required to report, among other things, control deficiencies that constitute a “material weakness” or changes in internal controls that, or that are reasonably likely to, materially affect internal controls over financial reporting.

A “material weakness” is a significant deficiency or combination of significant deficiencies in internal control over financial reporting that results in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected and corrected on a timely basis.

The Company has engaged third party consultants in addition to having hired a total of seven (7) CPAs in various positions and functions since December 31, 2022.

Specifically, the Company has hired a new Chief Accounting Officer, a Director of Technical Accounting, three assistant controllers, a Director of Tax, and established and expanded technical accounting and SEC financial reporting groups.

As discussed in Item 9A, “Management's Report on Internal Control Over Financial Reporting,” we concluded we have material weaknesses in our internal controls during 2023.

If we fail to successfully remediate these weaknesses, our financial statements may not be accurate and the trading price of our stock could be negatively impacted.

However, the Company has continued to evolve and grow as business while addressing and remediating various deficiencies as a growth oriented company.

If we fail to successfully remediate these weaknesses, our financial statements may not be accurate and we may face restricted access to the capital markets and our stock price may be adversely affected.

If we do not develop and maintain effective controls and procedures or if we are otherwise unable to deliver timely and reliable financial information, we could suffer a loss of confidence in the reliability of our financial statements and the trading price of our stock could be negatively impacted.

Risks Related to the Market and Economy

The COVID-19 pandemic has and could continue to result in disruptions in supply chain, decreased customer demand, lower oil price and volatility in the stock market and the global economy, which could negatively impact our business, financial position, and results of operations.

The COVID-19 pandemic created extensive disruptions to the global economy and to the lives of individuals throughout the world.

COVID-19 spread globally during the first few months of 2020, resulting in certain supply chain disruptions, volatility in the stock market, lower oil prices, and a lockdown in international travel, all of which continued to adversely impact the global economy and may potentially impact future demand from our customers.

While the scope, duration, and long-term effects of COVID-19 are rapidly evolving and not fully known, the pandemic and related efforts to contain it disrupted global economic activity and increased economic and market uncertainty.

Further, a COVID-19 variant outbreak at one of our vendors’ or customers’ facilities could adversely impact or disrupt our operations.

The pandemic impacted our customers spending and we have experienced these types of events negatively impacting our customers’ spending in certain regions or, depending upon the severity, globally, which can adversely impact our business, reputation, results of operations or financial conditions.

If these effects resurface or continue for a prolonged period or result in sustained economic stress or recession, many of the risk factors identified in our Form 10-K could be exacerbated and such effects could have a material adverse impact on us in a number of ways.

Because there have been no comparable recent global pandemics that resulted in similar global impact, we do not know the lingering extent of COVID-19’s effects on our business, operations, or the global economy as a whole.

Any future development will be highly uncertain and cannot be predicted, including the scope and duration of the pandemic and any actions taken by governmental authorities and other third parties in response to a resurgence of the virus.

While we do not know the long-term impact on our business, our operations or the global economy as a whole, the effects could have a prolonged material adverse effect on our business, financial condition, and results of operations.

Our success depends in large part on the performance of our executive management team and other key personnel, as well as on our ability to attract, motivate and retain highly qualified senior and middle management and other skilled employees.

Competition for qualified employees is intense and the process of locating qualified key personnel may be lengthy and expensive.

If any of our executive management team contract COVID-19, we may lose their services for an extended period of time, which would likely have a negative impact on our business and operations.

If we experience widespread cases of COVID-19 or its variants among our employees, it would place more pressure on the remaining employees to perform all functions across the organization while maintaining their health, may require us to take remediation measures, and could impair our ability to conduct business.

We may not be successful in retaining our key employees or finding adequate replacements for lost personnel.

A general slowdown in the economy could negatively impact the Company's sales growth and profitability.

1 unchanged sentence

Demand for our products is subject to economic trends affecting our customers and the industries in which they compete in particular.

Many of these industries, such as the manufacturing, food & beverage and oil and gas industry, are subject to volatility while others, such as the petrochemical industry, are cyclical and are materially affected by changes in the economy.

General economic factors beyond our control that affect our business and our customers include (among others) interest rates, recession, inflation, deflation, customer credit availability, consumer credit availability, consumer debt levels, performance of housing markets, energy costs, tax rates and policy, unemployment rates, and other economic matters that influence our customers' spending.

Many of our customers' industries, such as the manufacturing, food & beverage and oil and gas industry, are subject to volatility while others, such as the petrochemical industry, are cyclical and are materially affected by changes in the economy.

As a result, demand for our products could be adversely impacted by changes in the markets of our customers.

1 unchanged sentence

We could be adversely impacted by low oil prices, volatility in oil prices and downturns in the energy industry, including decreased capital expenditures, impacting our customers’ demand for our products and services.

A significant portion of our revenue depends upon the level of capital and operating expenditures in the oil and natural gas industry, including capital expenditures in connection with the upstream, midstream, and downstream phases in the energy industry.

A portion of our revenue depends upon the level of capital and operating expenditures in the oil and natural gas industry.

Therefore, a significant decline in oil or natural gas prices could lead to a decrease in our customers’ capital and other expenditures and could adversely affect our revenues.

Low oil prices and the resulting downturns or lack of growth in the energy industry and energy related business could adversely impact our results of operations and financial condition.

Therefore, sustained low oil and natural gas prices or a decline of such prices could lead to a decrease in our customers’ capital and other expenditures and could adversely affect our revenues.

Adverse weather events or natural disasters could negatively disrupt our operations.

29 unchanged sentences

If we are unable to comply with our financial covenants or obtain a waiver or amendment of those covenants or obtain alternative financing, our business and financial condition would be adversely affected.

Changes in our credit profile may affect our relationship with our suppliers, which could have a material adverse effect on our liquidity.

Changes in our credit profile may affect the way our suppliers view our ability to make payments and may induce them to shorten the payment terms of their invoices if they perceive our indebtedness to be high.

Given the large dollar amounts and volume of our purchases from suppliers, a change in payment terms may have a material adverse effect on our liquidity and our ability to make payments to our suppliers and, consequently, may have a material adverse effect on us.

Risks Related to Legal and Regulatory Matters

23 unchanged sentences

Securities litigation against us could result in substantial costs and divert our management's attention from other business concerns, which could adversely affect our business.

We are subject to personal injury and product liability claims involving allegedly defective products.

A variety of products we distribute are used in potentially hazardous applications that can result in personal injury and product liability claims.

A catastrophic occurrence at a location where the products we distribute are used may result in us being named as a defendant in lawsuits asserting potentially large claims and applicable law may render us liable for damages without regard to negligence or fault.

We are subject to personal injury, product liability and environmental claims involving allegedly defective products.

A variety of products we distribute are used in potentially hazardous applications that can result in personal injury, product liability and environmental claims.

A catastrophic occurrence at a location where the products we distribute are used may result in us being named as a defendant in lawsuits asserting potentially large claims even though we did not manufacture the products and applicable law may render us liable for damages without regard to negligence or fault.

In particular, certain environmental laws provide for joint and several and strict liability for remediation of spills and releases of hazardous substances.

Certain of these risks are reduced by the fact that we are a distributor of products that third-party manufacturers produce, and, thus, in certain circumstances, we may have third-party warranty or other claims against the manufacturer of products alleged to have been defective.

However, there is no assurance that these claims could fully protect us or that the manufacturer would be able financially to provide protection.

There is no assurance that our insurance coverage will cover or be adequate to cover the underlying claims.

We are subject to risks associated with conducting business in foreign countries.

We conduct a meaningful amount of business outside of the United States of America.

We conduct a meaningful amount of business outside of the U.S.

We could be adversely affected by economic, legal, political and regulatory developments in countries that we conduct business in.

3 unchanged sentences

dollar, the sales, expenses, profits, losses assets and liabilities of our foreign operations, as reported in our consolidated financial statements, increase or decrease, accordingly.

Moreover, our international operations subject us to a variety of foreign laws and regulations, including without limitation, import and export requirements, the FCPA, U.S.

and foreign tax laws, data privacy requirements, labor laws and anti-competition regulations.

Our employees, contractors or agents may violate laws and regulations despite our attempts to implement policies and procedures to comply with such laws and regulations.

Any such violations could individually or in the aggregate materially adversely affect our financial condition or results of operations.

We are subject to environmental, health and safety laws and regulations.

We are subject to environmental, health and safety laws and regulations that may lead to significant liabilities and negatively impact our business.

We are subject to federal, state, local, foreign and provincial environmental, health and safety laws and regulations.

Fines and penalties may be imposed for non-compliance with applicable environmental, health and safety requirements and the failure to have or to comply with the terms and conditions of required permits.

The failure by us to comply with applicable environmental, health and safety requirements could result in fines, penalties, enforcement actions, third party claims for property damage and personal injury, requirements to clean up property or to pay for the costs of cleanup, or regulatory or judicial orders requiring corrective measures.

The failure by us to comply with applicable environmental, health and safety requirements could result in significant liabilities including fines, penalties, enforcement actions, third party claims for property damage and personal injury, requirements to clean up property or to pay for the costs of cleanup, or regulatory or judicial orders requiring corrective measures, which could negatively impact our business.

We are subject to various government regulations, the cost of compliance of such regulations could increase our cost of conducting business and any violations of such regulations could materially adversely affect our financial condition or results of operations.

We are subject to laws and regulations in every jurisdiction where we operate.

We are subject to laws and regulations in every jurisdiction where we operate including the U.S.

and certain foreign countries.

Compliance with laws and regulations increases our cost of doing business.

We are subject to a variety of laws and regulations, including without limitation import and export requirements, the Foreign Corrupt Practices Act (the “FCPA”), tax laws (including U.S.

We are subject to a variety of U.S.

and foreign laws and regulations, including without limitation import and export requirements, the Foreign Corrupt Practices Act (the “FCPA”), U.S.

and foreign tax laws (including U.S.

taxes on our foreign subsidiaries), data privacy requirements, labor laws and anti-competition regulations.

We are also subject to audits and inquiries in the ordinary course of business.

Changes to the legal and regulatory environments could increase the cost of doing business, and such costs may increase in the future as a result of changes in these laws and regulations or in their interpretation.

Changes to the legal and regulatory environments could increase the cost of doing business and could negatively affect our earnings, and such costs may increase in the future as a result of changes in these laws and regulations or in their interpretation.

Our employees, contractors or agents may violate laws and regulations despite our attempts to implement policies and procedures to comply with such laws and regulations.

Any such violations could individually or in the aggregate materially adversely affect our financial condition or results of operations.

Unresolved Staff Comments

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 1A. Risk Factors