What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-03-11 compared with 2023-04-17 · 371 added, 401 removed, 720 unchanged (52% of the section changed)

2 unchanged sentences

Report of Independent Registered Public Accounting Firm ( McConnell & Jones LLP , Houston, Texas

Report of Independent Registered Public Accounting Firm ( Moss Adams LLP , Houston, Texas ,

Consolidated Statements of Operations and Comprehensive Income

6 unchanged sentences

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheet of DXP Enterprises, Inc.

and its subsidiaries (the “Company”) as of December 31, 2022, and the related consolidated statements of operations and comprehensive income (loss), of equity and of cash flows for the year then ended, including the related notes (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of DXP Enterprises, Inc.

and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations and comprehensive income, of equity and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because material weaknesses in internal control over financial reporting existed as of that date as the Company did not design and maintain (i) an effective control environment due to a lack of a sufficient complement of resources with an appropriate level of accounting knowledge, experience and training to appropriately analyze, record and disclose accounting matters timely and accurately, and an appropriate level of knowledge and experience to establish effective processes and controls, (ii) effective controls over the timely clearing of discrepancies arising from the three-way-match process of matching purchase orders, invoices, and item receipts, (iii) effective controls over the completeness, occurrence, cut-off, accuracy and presentation and disclosure of revenue, and (iv) effective controls to ensure appropriate segregation of duties and adequately review user access to transactions within business processes relevant to significant accounts and disclosures within the general ledger system across the Company.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because material weaknesses in internal control over financial reporting existed as of that date related to the Company not designing and maintaining (i) an effective control environment due to a lack of a sufficient complement of resources with an appropriate level of Company knowledge and experience to establish effective processes and controls, and (ii) effective controls over the completeness, occurrence, cut-off, accuracy and presentation and disclosure of revenue.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

3 unchanged sentences

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in management's report referred to above.

Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audit.

Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audit of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinions.

As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded Sullivan Environmental Technologies, Inc.

(Sullivan), Cisco Air Systems, Inc.

(Cisco), Drydon Equipment, Inc.

(Drydon), and Burlingame Engineers, Inc.

(Burlingame) from its assessment of internal control over financial reporting as of December 31, 2022 because they were acquired by the Company in purchase business combinations during 2022.

We have also excluded Sullivan, Cisco, Drydon, and Burlingame from our audit of internal control over financial reporting.

Sullivan, Cisco, Drydon, and Burlingame are wholly-owned subsidiaries whose total assets and total sales excluded from management’s assessment and our audit of internal control over financial reporting collectively represent approximately 3% and 3%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2022.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

8 unchanged sentences

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition - Estimated Costs to Complete Contracts - Innovative Pumping Solutions Segment

Revenue Recognized Over Time - Estimated Costs to Complete Open Contracts

As described in Note 2 to the consolidated financial statements, revenue recognized under the percentage-of-completion method was $311 million for the year ended December 31, 2023.

As disclosed by management, a substantial portion of the Innovative Pumping Solutions segment sales are made pursuant to contracts to fabricate tangible assets to customer specifications that can range from three to eighteen months or more.

The Company accounts for these contracts under the percentage-of-completion method of accounting, which is an input method as defined by ASC 606, Revenue Recognition .

As disclosed by management, the Company has contracts to fabricate tangible assets to customer specifications that can range from three to eighteen months or more.

The Company accounts for these contracts under the percentage-of-completion method of accounting.

Under this method, the Company recognizes sales and profit based upon the cost-to-cost method, in which sales and profit are recorded based upon the ratio of costs incurred to estimated total costs to complete the asset.

3 unchanged sentences

Estimated costs are based primarily on purchase contract terms and assumptions relating to items such as cost of materials, labor productivity and cost, and overhead.

The principal considerations for our determination that performing procedures relating to the estimated costs to complete contracts used in revenue recognition for the Innovative Pumping Solutions segment is a critical audit matter are (i) the significant judgment by management when determining the estimated costs to complete the contracts and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and in evaluating the significant assumption related to the estimated cost of materials.

The principal considerations for our determination that performing procedures relating to the estimated costs to complete open contracts used in revenue recognition is a critical audit matter are (i) the significant judgment by management when developing the estimated costs to complete the open contracts, and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and in evaluating management’s significant assumption related to the estimated cost of materials.

As described in the “Opinions on the Financial Statements and Internal Control over Financial Reporting” section, a material weakness was identified related to this matter.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included, among others, evaluating and testing management’s process for determining the estimated costs to complete the contracts for a sample of contracts, which included evaluating the reasonableness of the significant assumption used by management related to the estimated cost of materials.

Evaluating management's ability to reasonably estimate costs to complete contracts involved (i) obtaining and inspecting executed purchase orders and agreements, (ii) evaluating the reasonableness of the significant assumption related to estimated cost of materials by considering customer specifications and associated vendor quotes, and (iii) performing a comparison of the originally estimated and actual costs incurred on similar completed contracts.

These procedures included evaluating and determining the nature and extent of audit procedures performed and evidence obtained that are responsive to the material weakness identified.

These procedures also included, among others, evaluating and testing management’s process for developing the estimated costs to complete the open contracts for a sample of open contracts, and evaluating management’s ability to reasonably estimate costs to complete open contracts.

Evaluating management's ability to reasonably estimate costs to complete open contracts involved (i) obtaining and inspecting executed purchase orders and agreements, (ii) evaluating the reasonableness of the significant assumption related to estimated cost of materials by considering customer specifications and associated vendor quotes, and (iii) performing a comparison of the originally estimated and actual costs incurred on similar completed contracts.

/s/ PricewaterhouseCoopers LLP

Houston, Texas

April 17, 2023

March 11, 2024

We have served as the Company’s auditor since 2022.

49 unchanged sentences

April 5, 2022

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

DXP ENTERPRISES, INC.

Opinion on the Financial Statements

We have audited the consolidated statements of operations and comprehensive income (loss), equity, and cash flows of DXP Enterprises, Inc.

and subsidiaries (the “Company”) for the year ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of its operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

We believe that our audit provide a reasonable basis for our opinion.

/s/Moss Adams LLP

Houston, Texas

March 18, 2021, except for the effects of the correction of errors previously disclosed in the restated December 31, 2020 financial statements, as to which the date is October 21, 2021.

We served as the Company’s auditor from 2017 to 2021.

DXP ENTERPRISES, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(in thousands, except per share amounts)

Years Ended December 31,

Twelve Months Ended December 31,

2023 2022 2021

2 unchanged sentences

Gross profit 505,291 422,038 328,506

Selling, general and administrative expense 324,286 288,649 244,981

Impairment and other charges — — 59,883

Income (loss) from operating 97,752 39,857 ( 27,668 )

Other expense (income), net 2,716 ( 414 ) 74

Selling, general and administrative expenses

366,569 324,286 288,649

Income from operations

138,722 97,752 39,857

Other (income) expense, net

( 1,355 ) 2,716 ( 414 )

Interest expense 53,146 29,135 21,089

Income (loss) before income taxes 65,901 19,182 ( 48,313 )

Provision for income tax expense (benefit) 17,799 3,431 ( 18,696 )

Net income (loss) 48,102 15,751 ( 29,617 )

Income before income taxes

86,931 65,901 19,182

Provision for income tax expense

18,119 17,799 3,431

68,812 48,102 15,751

Net loss attributable to noncontrolling interest — ( 53 ) ( 745 )

Net income (loss) attributable to DXP Enterprises, Inc.

Net income attributable to DXP Enterprises, Inc.

68,812 48,155 16,496

Preferred stock dividend 90 90 90

Net income (loss) attributable to common shareholders 48,065 16,406 ( 29,359 )

Net income (loss) 48,102 15,751 ( 29,617 )

Cumulative translation adjustment, net of income taxes ( 2,393 ) 747 2,337

Comprehensive income (loss) $ 45,709 $ 16,498 $ ( 27,280 )

Earnings (loss) per share (Note 13)

Net income attributable to common shareholders

$ 68,722 $ 48,065 $ 16,406

$ 68,812 $ 48,102 $ 15,751

Foreign currency translation adjustments

435 ( 2,393 ) 747

Comprehensive income

$ 69,247 $ 45,709 $ 16,498

Earnings per share (Note 1 2 ) :

Basic $ 4.07 $ 2.58 $ 0.87

7 unchanged sentences

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(in thousands, except share amounts)

December 31, 2023 December 31, 2022

2 unchanged sentences

Restricted cash 91 91

Accounts receivable, net of allowances for doubtful accounts of $ 7,610 and $ 7,759

Accounts receivable, net of allowance of $ 5,584 and $ 7,610 , respectively

311,171 320,880

2 unchanged sentences

Prepaid expenses and other current assets 18,044 24,137

Federal income taxes receivable 2,493 9,748

Total current assets 648,554 516,114

1 unchanged sentence

Goodwill 343,991 333,759

Identified Intangibles, net 79,585 79,205

Operating lease ROU assets 57,402 57,221

Other intangible assets, net

63,895 79,585

Operating lease right of use assets, net

48,729 57,402

Other long-term assets 10,649 4,456

2 unchanged sentences

Current liabilities:

Current maturities of long-term debt $ 4,369 $ 3,300

Current maturities of debt

$ 5,500 $ 4,369

Trade accounts payable 96,469 92,805

5 unchanged sentences

Total current liabilities 224,165 212,901

Long-term debt, net of current maturities and unamortized debt issuance costs 409,205 315,397

Long-term debt, net of unamortized debt issuance costs and discounts

520,697 409,205

Long-term operating lease liabilities 34,336 40,189

Other long-term liabilities 17,359 9,593

Deferred income taxes 4,892 7,516

Total long-term liabilities 572,392 458,987

7 unchanged sentences

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

17,690,069 and 18,580,364 outstanding

16,177,237 and 17,690,069 outstanding, respectively

Additional paid-in capital 216,482 213,937

1 unchanged sentence

Accumulated other comprehensive loss ( 31,240 ) ( 31,675 )

Treasury stock, at cost 2,435,352 and 1,184,648 shares

Treasury stock, at cost 4,141,989 and 2,435,352 shares, respectively

( 123,995 ) ( 67,780 )

1 unchanged sentence

equity 380,879 365,392

Noncontrolling interest — 53

Total equity $ 365,392 $ 346,727

Total liabilities and equity $ 1,177,436 $ 1,037,280

4 unchanged sentences

(in thousands)

Years Ended December 31,

Twelve Months Ended December 31,

2023 2022 2021

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss) $ 48,102 $ 15,751 $ ( 29,617 )

Reconciliation of net income (loss) to net cash provided by operating activities:

$ 68,812 $ 48,102 $ 15,751

Reconciliation of net income to net cash provided by operating activities:

Depreciation 8,423 9,585 9,946

Impairment and other charges — — 59,883

Amortization of intangible assets and deferred financing costs 20,757 18,755 14,162

Bad debt expense 659 67 1,194

Amortization of intangible assets and fixed assets

21,682 18,915 17,197

Amortization of deferred financing costs

2,991 1,842 1,558

(Recovery of) provision for credit losses

( 885 ) 659 67

Payment of contingent consideration liability in excess of acquisition-date fair value ( 160 ) ( 781 ) ( 45 )

Fair value adjustment on contingent consideration 1,738 2,311 504

Loss on extinguishment and modification of debt — — 2,288

Loss on debt extinguishment

Gain on sale of property and equipment — — ( 282 )

Stock compensation expense 1,850 1,823 3,532

Restricted stock compensation expense

3,072 1,850 1,823

Deferred income taxes ( 9,059 ) ( 7,541 ) 6,140

1 unchanged sentence

Changes in operating assets and liabilities, and other:

Change in accounts receivable, net ( 93,940 ) ( 43,736 ) 44,884

Accounts payable and accrued expenses 35,965 27,004 ( 15,345 )

Accounts receivable, net

13,293 ( 93,940 ) ( 43,736 )

Cost and estimated profits in excess of billings

( 18,720 ) ( 6,429 ) 3,991

Inventories ( 2,026 ) 2,072 ( 5,290 )

Other ( 14,338 ) 6,452 11,122

Prepaid expenses and other assets

9,666 ( 11,865 ) 649

Accounts payable and accrued expenses 10,604 35,965 27,004

Billings in excess of costs and estimated profits

( 916 ) 6,858 ( 772 )

Other long-term liabilities

( 3,494 ) ( 2,902 ) 2,584

Net cash provided by operating activities $ 106,222 $ 5,894 $ 37,089

5 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from revolving credit facilities 827,152 — —

Payments on revolving credit facilities ( 827,152 ) — —

Borrowings on asset-backed credit facility 7,870 827,152 —

Repayments on asset-backed credit facility ( 7,870 ) ( 827,152 ) —

Proceeds from debt 550,000 105,000 —

1 unchanged sentence

Debt issuance costs ( 12,061 ) ( 8,398 ) —

Issuance of Common Stock- shares sold in public market — — 1,142

Purchase of treasury stock ( 47,872 ) ( 33,511 ) —

Payment for contingent consideration liability ( 469 ) ( 955 ) ( 1,864 )

Shares repurchased held in treasury

( 56,215 ) ( 47,872 ) ( 33,511 )

Payment for acquisition contingent consideration liability

( 5,673 ) ( 469 ) ( 955 )

Preferred dividends paid ( 90 ) ( 90 ) ( 90 )

Payment for employee taxes withheld from stock awards ( 527 ) ( 292 ) ( 637 )

Principal repayments on finance lease obligations

( 2,347 ) — —

Net cash provided by (used in) financing activities $ 43,579 $ 44,312 $ ( 38,493 )

Effect of foreign currency on cash ( 60 ) 253 88

Net Change In Cash $ ( 2,963 ) $ ( 70,339 ) $ 65,092

Cash and restricted cash at Beginning of Year 49,080 119,419 54,327

Cash and restricted cash at End of Year $ 46,117 $ 49,080 $ 119,419

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

DXP ENTERPRISES, INC.

AND SUBSIDIARIES (CONTINUED)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Years Ended December 31,

Net change in cash and restricted cash

127,094 ( 2,963 ) ( 70,339 )

SUPPLEMENTAL CASH FLOW INFORMATION:

Cash paid for interest $ 25,321 $ 19,531 $ 13,321

Cash paid for income taxes 26,179 6,120 6,277

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Shares issued for acquisitions (Note 1 7 )

Cash and restricted cash at beginning of year

46,117 49,080 119,419

Share repurchase agreement ( Note 15)

Cash and restricted cash at end of year

$ 173,211 $ 46,117 $ 49,080

Supplemental cash flow information ( Note 1 5 )

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

DXP ENTERPRISES, INC.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF EQUITY

(in thousands, except share amounts)

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

Balance at December 31, 2019 $ 1 $ 15 $ 174 $ 157,886 $ 215,664 $ — $ 1,146 $ ( 32,366 ) $ 342,520

Dividends paid — — — — ( 90 ) — — — ( 90 )

Compensation expense for restricted stock — — — 3,532 — — — — 3,532

Tax related items for share based awards — — — ( 139 ) — — — — ( 139 )

Issuance of shares of common stock-Acquisition — — 15 29,351 — — — — 29,366

Issuance of shares of Common stock-Shares sold in public market — — — 1,142 — — — — 1,142

Cumulative translation adjustment — — — 296 ( 227 ) — — 2,337 2,406

Net loss — — — — ( 29,269 ) — ( 348 ) — ( 29,617 )

(in thousands)

Series A preferred Stock Series B convertible preferred Stock

Common Stock Paid-in Capital Retained earnings Treasury stock Non controlling interest Accum Other Comp Loss

Balance at December 31, 2020 $ 1 $ 15 $ 189 $ 192,068 $ 186,078 $ — $ 798 $ ( 30,029 ) $ 349,120

Dividends paid — — — — ( 90 ) — — — ( 90 )

Preferred dividends paid — — — — ( 90 ) — — — ( 90 )

Compensation expense for restricted stock — — — 1,767 — — — — 1,767

2 unchanged sentences

Issuance of shares of common stock — — 6 13,518 — — — — 13,524

Cumulative translation adjustment — — — — — — — 747 747

Purchase of treasury stock — — — — — ( 33,511 ) — — —

Currency translation adjustment — — — — — — — 747 747

Repurchases of shares — — — — — ( 33,511 ) — — ( 33,511 )

Net income (loss) — — — — 16,496 — ( 745 ) — 15,751

Balance at December 31, 2021 $ 1 $ 15 $ 195 $ 206,772 $ 202,484 $ ( 33,511 ) $ 53 $ ( 29,282 ) $ 346,727

Dividends paid — — — — ( 90 ) — — — ( 90 )

Preferred dividends paid — — — — ( 90 ) — — — ( 90 )

Compensation expense for restricted stock — — — 1,850 — — — — 1,850

1 unchanged sentence

Issuance of shares of common stock — — 150 5,607 — — — — 5,757

Cumulative translation adjustment — — — — — — — ( 2,393 ) ( 2,393 )

Purchase of treasury stock — — — — — ( 34,269 ) — — ( 34,269 )

Noncontrolling interest — — — — — — — — —

Currency translation adjustment — — — — — — — ( 2,393 ) ( 2,393 )

Repurchases of shares — — — — — ( 34,269 ) — — ( 34,269 )

Net income (loss) — — — — 48,155 — ( 53 ) — 48,102

Balance at December 31, 2022 $ 1 $ 15 $ 345 $ 213,937 $ 250,549 $ ( 67,780 ) $ — $ ( 31,675 ) $ 365,392

Preferred dividends paid — — — — ( 90 ) — — — ( 90 )

Compensation expense for restricted stock — — — 3,072 — — — — 3,072

Tax related items for share based awards — — — ( 527 ) — — — — ( 527 )

Currency translation adjustment — — — — — — — 435 435

Repurchases of shares — — — — — ( 56,215 ) — — ( 56,215 )

Net income — — — — 68,812 — — — 68,812

Balance at December 31, 2023 $ 1 $ 15 $ 345 $ 216,482 $ 319,271 $ ( 123,995 ) $ — $ ( 31,240 ) $ 380,879

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

8 unchanged sentences

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”).

See Note 2 0 - Segment Reporting for discussion of the business segments.

1 unchanged sentence

Basis of Presentation

The Company’s financial statements are prepared in accordance with US GAAP.

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

GAAP") and in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC").

The accompanying consolidated financial statements include the accounts of the Company, and its wholly owned subsidiaries.

2 unchanged sentences

In November 2022, the Company sold its interest in the VIE and ceased the consolidation of the VIE within the Company's financial statements.

The losses associated with the VIE that occurred prior to the deconsolidation are included in the consolidated statements of operations and comprehensive income and loss.

These losses were $ 0.2 million, $ 0.9 million and $ 0.6 million for the years ended December 31, 2022, 2021 and 2020, respectively.

The losses associated with the VIE that occurred prior to the deconsolidation are included in the consolidated statements of operations and comprehensive income.

These losses were $ 0.2 million and $ 0.9 million for the years ended December 31, 2022 and 2021, respectively.

All intercompany accounts and transactions have been eliminated in consolidation.

Certain reclassifications were made to the prior year’s consolidated financial statements to conform to the current year presentation.

Such reclassifications did not have a material effect on our consolidated statements of operations and comprehensive income, balance sheets, cash flows or equity.

Business Combinations

3 unchanged sentences

Subsequent to the acquisition, and not later than one year from the acquisition date, we will record any material adjustments to the initial estimate in the reporting period in which the adjustment amounts are determined based on facts and circumstances that existed as of the acquisition date, as applicable.

An income, market, or cost valuation method may be utilized to estimate the fair value of the assets acquired or liabilities assumed in a business combination.

Generally, we use an income valuation method to estimate the fair value of the assets acquired or liabilities assumed in a business combination.

However, a market or cost valuation method may be utilized.

We expense acquisition-related costs as incurred in connection with each business combination.

6 unchanged sentences

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

In the opinion of management, all adjustments necessary in order to make the financial statements not misleading have been included.

6 unchanged sentences

However, these payment terms are extended in select cases and customers may not pay within stated trade terms.

The Company has trade receivables from a diversified customer base located primarily in the Rocky Mountain, Northeastern, Midwestern, Southeastern and Southwestern regions of the United States and Canada.

The Company has trade receivables from a diversified customer base located primarily in the Rocky Mountain, Northeastern, Midwestern, Southeastern and Southwestern regions of the U.S.

The Company believes no significant concentration of credit risk exists.

4 unchanged sentences

Changes in this allowance for 2023 and 2022 are as follows ( in thousands ):

Years Ended December 31,

Beginning balance, January 1

$ 7,610 $ 7,759

Balance at beginning of year $ 7,759 $ 8,628 $ 8,929

Charged to costs and expenses 659 67 1,194

Charged to other accounts (1)

Deductions (2)

(Recoveries) Charges to expense

Foreign currency translation

( 1,154 ) ( 770 )

Balance at end of year $ 7,610 $ 7,759 $ 8,628

(1) Primarily due to translation adjustments

(2) Uncollectible accounts written off, net of recoveries

Inventories consist principally of equipment purchased for resale or finished goods and are priced at lower of cost or net realizable value, cost being primarily determined using the weighted average cost method.

The Company regularly reviews inventory to evaluate continued demand and records provisions for the difference between cost and net realizable value arising from excess and obsolete items on hand.

Provisions are provided against inventories for estimated excess and obsolescence based upon the aging of the inventories and market trends and are applied as a reduction in cost of the associated inventory.

Ending balance, December 31

$ 5,584 $ 7,610

Inventories are made up of equipment purchased for resale, and materials utilized in the fabrication of industrial and wastewater equipment stated at lower of cost and net realizable value, primarily determined using the weighted average cost method.

The Company regularly reviews inventory and records provisions for the difference between cost and net realizable value arising from excess and obsolete items on hand based upon the aging of the inventories, market trends, and continued demand.

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

Finished goods $ 94,031 $ 82,906

Work in process 9,774 18,486

Inventories $ 103,805 $ 101,392

Property and Equipment

9 unchanged sentences

Impairment of Goodwill and Other Intangible Assets

The Company tests goodwill for impairment on an annual basis in the fourth quarter and when events or changes in circumstances indicate that the carrying amount may not be recoverable.

The Company tests goodwill for impairment on an annual basis on October 1st and when events or changes in circumstances indicate that the carrying amount may not be recoverable.

The Company assigns the carrying value of these intangible assets to its reporting units and applies the test for goodwill at the reporting unit level.

4 unchanged sentences

The impairment charge is limited to the amount of goodwill allocated to the reporting unit and goodwill will not be reduced below zero.

The Company performed qualitative tests and determined no impairment of goodwill was required in 2022 and 2021.

For the twelve months ended December 31, 2020, goodwill was evaluated for impairment at the reporting unit level resulting in a $ 36.4 million goodwill impairment which was included in impairment charges in the consolidated statement of operations.

The Company performed qualitative tests and determined no impairment of goodwill was required for the years ended December 31, 2023, 2022 and 2021.

Impairment of Long-Lived Assets, Excluding Goodwill

8 unchanged sentences

An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.

No impairment of long-lived assets was required in 2022 and 2021.

For the twelve months ended December 31, 2020, long-lived assets were evaluated for impairment resulting in a $ 4.8 million long-lived assets impairment which was included in impairment charges in the consolidated statement of operations.

No impairment of long-lived assets was required for the years ended December 31, 2023, 2022 and 2021.

Revenue Recognition

The Company primarily provides purchased products distributed through its branch of local Service Centers and or provides services through its local branch network and recognizes revenue at a point in time when control of the product or service performed transfers to the customer, typically upon shipment or completion from a DXP facility or directly from a supplier.

The Company primarily provides purchased products distributed through its branch of local Service Centers and provides services through its local branch network and recognizes revenue at a point in time when control of the product or service performed transfers to the customer, typically upon shipment or completion from a DXP facility or directly from a supplier.

Revenue is measured at the amount of consideration expected to be received in exchange for the products and services provided, net of allowances for product returns, and any taxes collected from customers that will be remitted to governmental authorities.

7 unchanged sentences

The Company reserves for potential customer returns based upon historical levels.

The Company also assembles, kits, fabricates and assembles custom-made pump packages, remanufactures pumps, and manufactures branded private label pumps substantially within our Innovative Pumping Solutions segment.

The Company also assembles, kits, and fabricates custom-made pump packages, remanufactures pumps, and manufactures branded private label pumps substantially within our Innovative Pumping Solutions segment.

For binding agreements to assemble, fabricate and direct tangible assets to customer specifications, the Company recognizes revenues over time when the customer is able to direct the use of and obtain substantially all of the benefits of the work performed.

7 unchanged sentences

Estimated costs are based primarily on purchase contract terms and estimated cost of materials, labor productivity and cost, and overhead.

Percentage of completion revenues were $ 213.3 million for the twelve months ended December 31, 2022.

Additionally, revenue in the fourth quarter included an out-of-period adjustment that increased revenue by $ 21.2 million, of which $ 10.6 million relates to the year ended December 31, 2021.

The impact of this out-of-period adjustment was an increase to income before income taxes of $5.6 million and $3.0 million for the fourth quarter in 2022 and the year-ended December 31, 2022, respectively.

We evaluated the impact of this error on our previously issued financial statements, assessing both quantitatively and qualitatively, and concluded the error was not material to any of our prior period or the current period financial statements.

Percentage of completion revenues were $ 311.0 million and $ 213.3 million for the years ended December 31, 2023 and December 31, 2022.

Shipping and Handling Costs

1 unchanged sentence

Shipping and handling charges paid to others are classified as a component of cost of sales.

Self-insured Insurance and Medical Claims

We generally retain up to $ 100,000 of risk for each claim for workers compensation, general liability, automobile, and property loss.

We accrue for the estimated loss on the self-insured portion of these claims.

The accrual is adjusted quarterly based upon reported claims information.

The actual cost could deviate from the recorded estimate.

We generally retain up to $ 175,000 of risk on each medical claim for our employees and their dependents with the exception of less than 0.05 % of employees where a higher risk is retained.

We accrue for the estimated outstanding balance of unpaid medical claims for our employees and their dependents.

The accrual is adjusted monthly based on recent claims experience.

The actual claims could deviate from recent claims experience and could be materially different from the accrual.

The accrual for these claims at December 31, 2022 and 2021 was approximately $ 2.9 million and $ 2.8 million, respectively.

Cost of Sales and Selling, General and Administrative Expense

14 unchanged sentences

The Company believes that it has appropriate support for the income tax positions taken and to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter.

Comprehensive Income (Loss)

Comprehensive income (loss) includes net income and foreign currency translation adjustments.

The Company’s other comprehensive (loss) income is from translating foreign subsidiaries to the reporting currency.

Comprehensive Income

Comprehensive income includes net income and foreign currency translation adjustments.

The Company’s other comprehensive income is from translating foreign subsidiaries to the reporting currency.

NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

On April 1, 2022, we adopted Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, along with its subsequently issued guidance, which provides temporary optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met.

The provisions of this update are applicable to us through December 31, 2022.

The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.

Accounting Pronouncements Not Yet Adopted

In October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (ASU) 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , to address diversity in practice on how an acquirer should recognize and measure revenue contracts acquired in a business combination.

In October 2021, the Financial Accounting Standards Board ("FASB") issued ASU 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , to address diversity in practice on how an acquirer should recognize and measure revenue contracts acquired in a business combination.

ASU 2021-08 will require an acquirer to recognize and measure contract assets acquired and contract liabilities assumed in a business combination in accordance with FASB Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers .

1 unchanged sentence

The ASU should be applied prospectively to business combinations occurring on or after the effective date.

Early adoption of ASU 2021-08 is permitted, including in an interim period.

The Company expects the new Standard to have an impact for future acquisitions.

From time to time the Company does acquire businesses that perform project-based work and therefore include Contract Assets and Liabilities.

The adoption of this new guidance had no impact on our consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In November 2023, the Financial Accounting Standards Board ("FASB") issued new guidance that modifies the disclosure and presentation requirements of reportable segments.

The new guidance requires the disclosure of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit and loss.

In addition, the new guidance enhances interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, provides new segment disclosure requirements for entities with a single reportable segment, and contains other disclosure requirements.

The update is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

We are evaluating the impact of adopting this new guidance on our consolidated financial statement disclosures.

All other new accounting pronouncements that have been issued but not yet effective are currently being evaluated and at this time are not expected to have a material impact on our financial position or results of operations.

1 unchanged sentence

We lease office space, warehouses, land, automobiles, office, and manufacturing equipment.

All of our leases are classified as operating leases.

Our leases have remaining lease terms within 1 month to 9 years, some of which include options to extend the leases for up to 14 years.

The exercise of lease renewal options is at our sole discretion.

Our lease agreements do not include options to purchase the leased property.

Lease costs recognized in Selling, general, and administrative expense was $ 24.5 million and $ 24.2 million for the years ended December 31, 2022 and 2021, respectively.

Supplemental cash flow information related to leases was as follows (in thousands) :

Twelve Months Ended December 31, 2022 Twelve Months Ended December 31, 2021

Some of our leases include one or more renewal options to extend the lease term, which can be exercised at our sole discretion.

Our lease agreements may include options to purchase the leased property.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Additionally, we do not have any material lessor or sub-leasing arrangements.

The following table presents components of lease cost (in thousands) :

Twelve Months Ended December 31,

2023 2022 2021

Operating lease costs

$ 21,575 $ 24,371 $ 23,921

Finance lease costs:

Amortization of assets

Interest on lease liabilities

Total finance lease costs

4,046 $ — $ —

Total operating and finance lease costs $ 25,621 $ 24,371 $ 23,921

The following table presents supplemental cash flow information related to leases (in thousands) :

Twelve Months Ended December 31,

2023 2022 2021

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases $ 20,584 $ 20,142

Right-of-use assets obtained in exchange for lease liabilities

Operating leases $ 22,917 $ 24,735

Supplemental balance sheet information related to leases was as follows (in thousand) :

Lease Classification December 31, 2022 December 31, 2021

Operating Operating lease right-of-use assets $ 57,402 $ 57,221

Current operating Short-term operating lease liabilities 18,083 18,203

Non-current operating Long-term operating lease liabilities 40,189 39,922

Total operating lease liabilities $ 58,272 $ 58,125

Operating cash flows - operating leases

$ 21,823 $ 20,584 $ 20,142

Operating cash flows - finance leases

Financing cash flows - finance leases

$ 2,347 $ — $ —

The following table presents the consolidated balance sheet location of assets and liabilities related to operating and finance leases (in thousands) :

Balance Sheet Location

Operating lease right-of-use assets $ 48,729 $ 57,402

Property and equipment, net

Total lease assets

$ 60,449 $ 57,402

Current operating

Short-term operating lease liabilities 15,438 18,083

Non-current operating

Long-term operating lease liabilities 34,336 40,189

Current finance

Other current liabilities

Non-current finance

Other long-term liabilities

Total lease liabilities $ 61,678 $ 58,272

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.

Maturities of lease liabilities are as follows (in thousands) :

Year Ending December 31, Operating leases (*)

As of December 31, 2023 maturities of lease liabilities are as follows (in thousands) :

2024 $ 4,059 $ 18,177

2025 3,998 13,691

2026 3,437 10,218

2027 1,826 6,870

2028 108 3,690

Thereafter — 4,168

Total lease payments 66,090

Total future lease payments

13,428 56,814

imputed interest 1,524 7,040

Present value of lease liabilities $ 58,272

(*) Operating lease payments exclude $ 0.2 million and $ 0.5 million of minimum lease payments for leases signed but not yet commenced as of December 31, 2022 and December 31, 2021, respectively.

Rental expense for operating leases was $ 24.5 million, $ 24.2 million and $ 23.4 million for the years ended December, 2022, 2021 and 2020, respectively.

Lease term and discount rate Twelve Months Ended December 31, 2022 Twelve Months Ended December 31, 2021

Weighted average remaining lease term (years)

Operating lease 4.10 4.53

Weighted average discount rate

Operating lease 6.5 % 6.5 %

For the twelve months ended December 31, 2022, the Company incurred approximately $ 1.9 million in lease expenses to entities controlled by the Company's Chief Executive Officer, David Little and family.

Total lease liability balance

$ 11,904 $ 49,774

The following table presents weighted average remaining lease terms and discount rates:

Weighted-average remaining lease term - operating leases

Weighted-average remaining lease term - finance leases

Weighted average discount rate - operating leases

Weighted-average discount rate - finance leases

For the twelve months ended December 31, 2023, the Company incurred approximately $ 1.8 million in lease expenses to entities controlled by the Company's Chief Executive Officer and family.

NOTE 5 - FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

20 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 December 31, 2022, we recorded liabilities in other current and long-term liabilities for contingent consideration associated with the acquisitions of PMI, Burlingame, Drydon, Cisco and Sullivan of $ 1.2 million, $ 0.5 million, $ 2.8 million, $ 4.7 million and $ 1.0 million, respectively.

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

As of December 31, 2023, we recorded liabilities in other current and long-term liabilities for contingent consideration associated with the acquisitions of Drydon, Cisco, Sullivan, Florida Valve, Riordan, and Alliance of $ 1.9 million, $ 2.4 million, $ 1.0 million, $ 0.3 million, $ 2.9 million and $ 0.2 million, respectively.

See further discussion at Note 1 6 - Business Acquisitions .

For the Company's assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3), the following table provides a reconciliation of the beginning and ending balances for each category therein and gains or losses recognized during the twelve months ended December 31, 2022:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

Contingent Liability for Accrued Consideration

(in thousands)

Contingent Consideration

*Balance at December 31, 2022

5 unchanged sentences

*Balance at December 31, 2023

The amount of total (gains) or losses for the year included in earnings or changes to net assets, attributable to changes in unrealized (gains) or losses relating to assets or liabilities still held at December 31, 2022.

*Amounts included in other current liabilities were $ 5.4 million and $ 5.5 million for the periods ending December 31, 2023 and December 31, 2022, respectively.

2 unchanged sentences

The significant unobservable inputs used in the fair value measurement of the Company's contingent consideration liabilities designated as Level 3 are as follows:

(in thousands, unaudited) Fair Value at December 31, 2022 Valuation Technique Significant Unobservable Inputs

Contingent consideration:

(PMI, Burlingame, Drydon, Cisco and Sullivan acquisitions) $ 10,166 Discounted cash flow and weighted probability of possible payments Annualized EBITDA and probability of achievement

Contingent consideration ( in thousands, unaudited )

Fair Value at December 31, 2023 Valuation Technique Significant Unobservable Inputs

Drydon, Cisco, Sullivan, Florida Valve, Riordan and Alliance acquisitions

$ 8,753 Discounted cash flow and weighted probability of possible payments Annualized EBITDA and probability of achievement

Sensitivity to Changes in Significant Unobservable Inputs

4 unchanged sentences

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

cash, trade accounts receivable, trade accounts payable and accrued expenses, accrued payroll and related benefits, and the revolving line of credit and term loan debt under our syndicated credit agreement facility ( Note 10 ).

The Company believes that the estimated fair value of such instruments at December 31, 2022 and December 31, 2021 approximates their carrying value as reported on the consolidated balance sheets.

NOTE 6 - INVENTORIES

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

December 31, 2022 December 31, 2021

Finished goods $ 82,906 $ 80,329

Work in process 18,486 20,565

Inventories $ 101,392 $ 100,894

cash, restricted cash, trade accounts receivable, trade accounts payable and accrued expenses, accrued payroll and related benefits, and the revolving line of credit under our syndicated credit agreement facility.

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

NOTE 6 – CONTRACT ASSETS AND LIABILITIES

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

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

Our contract assets are presented as “Cost and estimated profits in excess of billings” on our Consolidated Balance Sheets.

Under our customized pump production 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 “Cost and estimated profits in excess of billings” on our Consolidated Balance Sheets.

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

Costs and estimated profits on uncompleted contracts and related amounts billed for 2022 and 2021 are as follows ( in thousands ):

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

Costs incurred on uncompleted contracts $ 92,363 $ 70,329

Estimated profits, thereon 37,379 23,274

Total 93,603 58,472

Total costs and estimated profits on uncompleted contracts

129,742 93,603

billings to date 96,928 80,421

Net $ 13,182 $ 13,613

$ 32,814 $ 13,182

Such amounts were included in the accompanying Consolidated Balance Sheets for 2023 and 2022 under the following captions ( in thousands ):

2 unchanged sentences

Translation Adjustment ( 3 ) 5

Net $ 13,182 $ 13,613

Net contract assets

$ 32,814 $ 13,182

During the twelve months ended December 31, 2023, $ 10.4 million of the balances that were previously classified as contract liabilities at the beginning of the period were recognized into revenues.

Contract assets and liability changes were primarily due to normal activity and timing differences between our performance and customer payments.

NOTE 8 - PROPERTY AND EQUIPMENT

The carrying values of property and equipment are as follows ( in thousands ):

December 31, 2022 December 31, 2021

NOTE 7 - PROPERTY AND EQUIPMENT, NET

The carrying values of property and equipment, net are as follows ( in thousands ):

Land $ 2,023 $ 2,023

1 unchanged sentence

Furniture, fixtures and equipment 113,945 109,052

Finance lease right-of-use assets 15,171 —

Less – Accumulated depreciation ( 99,361 ) ( 92,753 )

Total Property and Equipment $ 45,964 $ 51,880

Total Property and Equipment, net $ 61,618 $ 45,964

Depreciation expense was $ 8.4 million, $ 9.6 million, and $ 9.9 million for the years ended December 31, 2023, 2022, and 2021, respectively.

16 unchanged sentences

The following table presents the goodwill balance by reportable segment as of December 31, 2023 and 2022 (in thousands) :

As of December 31,

Service Centers $ 270,865 $ 269,106

12 unchanged sentences

Long-term debt consisted of the following ( in thousands ):

December 31, 2022 December 31, 2021

Carrying Value (1)

Fair Value Carrying Value (1)

ABL Revolver $ — $ —

Term Loan B 428,133 411,008 326,700 325,883

Total Debt 428,133 411,008 326,700 325,883

Senior Secured Term Loan B due December 23, 2027 (1)

Senior Secured Term Loan B due October 13, 2030 (2)

548,625 428,133

current maturities

( 5,500 ) ( 4,369 )

Total long-term debt

(1) Carrying value amount does not include unamortized debt issuance costs of $ 14.6 million and $ 8.0 million for years ended December 31, 2022 and December 31, 2021 respectively.

ABL Revolver and Senior Secured Term Loan B

543,125 423,764

Unamortized discount and debt issuance costs

22,428 14,559

Long-term debt, net of unamortized discount and debt issuance costs

$ 520,697 $ 409,205

(1) As of December 31, 2022 the fair value of the Term Loan B due December 23, 2027 was $ 411.0 million

(2) As of December 31, 2023 the fair value of the Term Loan B due October 13, 2030 was $ 554.1 million

Senior Secured Term Loan B:

On October 13, 2023, the Company entered into an amendment on its existing Senior Secured Term Loan B (the "Term Loan Amendment"), which provides for, among other things, an additional $ 125 million in new incremental commitments.

The Term Loan Amendment refinanced the existing Senior Term Loan B and replaced it with a new Senior Secured Term Loan B with total borrowings of $ 550.0 million.

The new Senior Secured Term Loan B amortizes in equal quarterly installments of 0.25 %, with the remaining balance being payable on October 13, 2030, when the facility matures.

Deferred financing costs associated with the Additional Term Loan Amendment were $ 11.7 million which were amortized to interest expense using the interest method during 2023.

In connection with the Additional Term Loan Amendment the Company expensed third-party fees of $ 0.8 million and recognized a $ 1.2 million loss on debt extinguishment, which were included in interest expense during 2023.

Quarterly interest payments accrue on outstanding borrowings under the new Senior Secured Term Loan B at a rate equal to Term SOFR (with a floor of 1.00 %) plus 4.75 %, or base rate plus 3.75 %.

The new Senior Secured Term Loan B is guaranteed by each of the Company’s direct and indirect material wholly owned subsidiaries, other than any of the Company’s Canadian subsidiaries and certain other excluded subsidiaries.

As of December 31, 2023 there was $ 548.6 million outstanding under the Senior Secured Term Loan B.

The interest rate for the Senior Secured Term Loan B was 10.44 % and 9.95 % as of December 31, 2023 and December 31, 2022, respectively.

ABL Revolver:

On July 19, 2022, the Company entered into an Amended and Restated Loan and Security Agreement (the “ABL Credit Agreement”) that provided for a $ 135.0 million asset-backed revolving line of credit (the "ABL Revolver").

The ABL Credit Agreement amends and restates the Loan and Security Agreement dated as of August 29, 2017.

The ABL Revolver matures on July 19, 2027.

During the twelve months ended December 31, 2022, the amount available to be borrowed under our credit facility increased to $ 132.4 million compared to $ 131.7 million at December 31, 2021 primarily as a result of outstanding letters of credit.

As of December 31, 2022, there were no amounts outstanding under the ABL Revolver.

Subject to the conditions set forth in the ABL Credit Agreement, the ABL Revolver may be increased in increments of $ 10.0 million up to an aggregate of $ 50.0 million.

The ABL Revolver will mature on July 19, 2027.

Interest shall accrue on outstanding borrowings at a rate equal to SOFR or CDOR plus a margin ranging from 1.25 % to 1.75 % per annum, or at an alternate base rate, Canadian prime rate or Canadian base rate plus a margin ranging from 0.25 % to 0.75 % per annum, in each case, based upon the average daily excess availability under the ABL Revolver for the most recently completed calendar quarter.

Fees ranging from 0.25 % to 0.375 % per annum will be payable on the portion of the facility not in use at any given time.

The unused line fee was 0.375 % at December 31, 2022.

The interest rate for the ABL Revolver was 7.8 % at December 31, 2022.

Senior Secured Term Loan B:

On November 22, 2022, the Company entered into an amendment on 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”).

There was $ 428.1 million outstanding under the Term Loan Agreement, as amended as of December 31, 2022.

The Term Loan Amendment amends and supplements the Term Loan Agreement, dated as of December 23, 2020, and provides for among other things, $ 105 million in new incremental commitments.

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

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

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

We are required to repay the Term Loan with certain asset sales and insurance proceeds, certain debt proceeds and 50 % of excess cash flow--reducing to (i.) 25 % if our total leverage ratio is no more than 3.00 to 1.00 and (ii.) 0 % if our total leverage ratio is no more than 2.50 to 1.00.

The interest rate for the Term Loan was 10.0 % as of December 31, 2022.

The ABL Revolver matures on July 19, 2027.

Interest accrues on outstanding borrowings at a rate equal to SOFR plus a margin ranging from 1.25 % to 1.75 % per annum, or at an alternate base rate, Canadian prime rate or Canadian base rate plus a margin ranging from 0.25 % to 0.75 % per annum, in each case, based upon the average daily excess availability under the ABL Revolver for the most recently completed calendar quarter.

Fees payable on the unused portion of the facility range from 0.25 % to 0.375 % per annum.

At December 31, 2023 the unused line fee was 0.375 % and there were no amounts outstanding under the ABL Revolver.

As of December 31, 2023, the borrowing availability under our credit facility was $ 132.1 million compared to $ 132.4 million at December 31, 2022, primarily as a result of outstanding letters of credit.

The interest rate for the ABL Revolver was 8.75 % and 7.75 % as of December 31, 2023 and December 31, 2022, respectively.

Financial Covenants:

2 unchanged sentences

The Company is restricted from allowing its fixed charge coverage ratio be less than 1.00 to 1.00 during a compliance period, which is triggered when the availability under the ABL Revolver falls below a threshold set forth in the ABL Credit Agreement.

As of December 31, 2022, the Company's consolidated Fixed Charge Coverage Ratio was 3.59 to 1.00.

As of December 31, 2023, the Company's Fixed Charge Coverage Ratio was 2.69 to 1.00.

Secured Leverage Ratio – The Term Loan B Agreement requires that the Company’s Secured Leverage Ratio, defined as the ratio, as of the last day of any fiscal quarter of consolidated secured debt (net of unrestricted cash, not to exceed $ 200 million ) as of such day to EBITDA, beginning with the fiscal quarter ending December 31, 2023, is either equal to or less than as indicated in the table below:

Fiscal Quarter

Secured Leverage Ratio

Fiscal Quarter Secured Leverage Ratio

December 31, 2023 5.75 :1.00

March 31, 2024 5.75 :1.00

June 30, 2023 and each Fiscal Quarter thereafter 4.75 :1:00

June 30, 2024 5.50 :1.00

September 30, 2024 5.50 :1.00

December 31, 2024 5.50 :1.00

March 31, 2025 5.25 :1.00

June 30, 2025 5.25 :1.00

September 30, 2025 5.25 :1.00

December 31, 2025 5.00 :1.00

March 31, 2026 5.00 :1.00

June 30, 2026 and thereafter 4.75 :1.00

As of December 31, 2023, the Company’s Secured Leverage Ratio was 2.10 to 1.00.

EBITDA as defined under the Term Loan B Agreement for financial covenant purposes means, without duplication, for any period of determination, the sum of, consolidated net income during such period;

1 unchanged sentence

(i) income tax expense, (ii) franchise tax expense, (iii) interest expense, (iv) amortization and depreciation during such period, (v) all non-cash charges and adjustments, and (vi) non-recurring cash expenses related to the Term Loan, provided , that if the Company acquires or disposes of any property during such period (other than under certain exceptions specified in the Term Loan B Agreement, including the sale of inventory in the ordinary course of business, then EBITDA shall be calculated, after giving pro forma effect to such acquisition or disposition, as if such acquisition or disposition had occurred on the first day of such period.

As of December 31, 2022, the Company’s consolidated Secured Leverage Ratio was 2.83 to 1.00.

Interest on Borrowings

The interest rates on our borrowings outstanding at December 31, 2022 and 2021, including the amortization of debt issuance costs, are as follows:

ABL Revolver 7.75 % 1.85 %

Term Loan B 9.95 % 5.75 %

Weighted average interest rate 9.95 % 5.75 %

The Company was in compliance with all financial covenants as of December 31, 2023.

Amendment of Previously Existing Credit Agreement

As set forth above, on November 22, 2022, the Company amended and supplemented its previously existing Tern Loan Agreement with the Term Loan Amendment.

The Term Loan Amendment provides for $ 105 million in new Incremental Term Loan Commitments (as defined in the Term Loan Agreement).

The existing and new borrowings under the Term Loan Agreement mature on December 23, 2027 and are priced at Term SOFR plus an applicable margin of 5.25 percent.

Deferred financing costs of $ 7.9 million were associated with modified and new debt and will be amortized to interest expense using the interest method over the life of the term loan.

In connection with the Term Loan Amendment we expensed third-party fees of $ 2.0 million, which was included in interest expense during 2022.

As of December 31, 2023, the maturities of long-term debt for the next five years and thereafter were as follows ( in thousands ):

Year $ Amount

Thereafter 521,125

1 unchanged sentence

NOTE 10 - INCOME TAXES

The components of income (loss) before income taxes are as follows ( in thousands ):

The components of income before income taxes are as follows ( in thousands ):

Years Ended December 31,

24 unchanged sentences

Research and development tax credit ( 4,811 ) ( 250 ) ( 1,036 )

Foreign tax credit — — —

Valuation allowance 274 ( 1 ) 1

Tax reform deferred tax remeasurement — — ( 2,587 )

Deferred tax liability true up — ( 62 ) ( 551 )

Uncertain tax positions ( 33 ) 271 871

Other 9 ( 281 ) 280

Total income tax expense (benefit) $ 17,799 $ 3,431 $ ( 18,696 )

Total income tax expense

$ 18,119 $ 17,799 $ 3,431

Deferred tax liabilities and assets were comprised of the following (in thousands) :

2 unchanged sentences

Inventory 3,371 4,585

Federal general business credit carryforward — 4,237

Texas research and development tax credit carryforward 2,239 2,329

1 unchanged sentence

Foreign tax credit carryforward 64 64

Charitable Contribution Carryforward — 531

Net operating loss carryforward 1,328 1,201

Capital loss carryforward 4 4

Deferred compensation — 152

Accruals 8,190 6,190

Business interest expense carryforward — 389

ROU asset 220 219

7 unchanged sentences

Property and equipment ( 7,885 ) ( 8,542 )

Deferred compensation ( 215 ) —

Unremitted foreign earnings ( 421 ) ( 421 )

1 unchanged sentence

Other ( 643 ) ( 825 )

Net deferred tax liability $ ( 4,892 ) $ ( 7,516 )

Total deferred tax liability

$ ( 36,345 ) $ ( 38,005 )

Net deferred tax asset (liability)

$ 3,504 3504000 $ ( 4,892 )

The Company records a valuation allowance when it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized.

1 unchanged sentence

If the Company was to determine that it would be able to realize the deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the valuation allowance, which would reduce the provision for income taxes.

As of December 31, 2022, the valuation allowance primarily relates to federal and foreign capital loss carryforwards.

As of December 31, 2023, the valuation allowance primarily relates to state operating loss and foreign capital loss carryforwards.

The following summarizes changes in the balance of valuation allowances on deferred tax assets (in thousands) :

Years Ended December 31,

2023 2022 2021

Balance at January 1 $ ( 4 ) $ ( 4 ) $ ( 12,813 )

Changes due to federal and foreign capital loss carryforwards — 12,809 ( 450 )

Changes due to state operating loss and foreign capital loss carryforwards

( 274 ) — 12,809

Balance at December 31 $ ( 278 ) $ ( 4 ) $ ( 4 )

Tax carryforwards available for use on future income tax returns, prior to valuation allowance, at December 31, 2022, are as follows (in thousands):

Expected tax benefit on carryforwards available for use on future income tax returns, prior to valuation allowance, at December 31, 2023, are as follows (in thousands) :

Domestic Foreign Expiration

1 unchanged sentence

Net operating loss - federal 562 — 2036-2042

Net operating loss - state

338 — Indefinite

Capital loss carryforward - foreign — 4 Indefinite

Capital loss carryforward - federal — — 2021

Foreign tax credits 64 — 2023,2025

Federal general business tax credits — — 2026 - 2030

Texas research and development tax credits 2,239 — 2037-2042

10 unchanged sentences

This benefit is partially offset by $ 5.6 million uncertain tax position due to the uncertainty related to the realizability of the federal research and development tax credits.

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

The Company is also recording a $ 0.1 million uncertain tax position related to non-deductible auto expense compensation.

For the year ended December 31, 2023, the Company recorded $ 0.2 million tax expense for interest and penalties related to uncertain tax positions.

The Company is subject to taxation in the United States, various states, and foreign jurisdictions.

The Company has significant operations in the United States and Canada and to a lesser extent in various other international jurisdictions.

Tax years that remain subject to examination vary by legal entity but are generally open in the United States for the tax years ended after 2016 and outside the United States for the tax years ended after 2015.

The Company is subject to taxation in the U.S., various states, and foreign jurisdictions.

The Company has significant operations in the U.S.

and Canada and to a lesser extent in various other international jurisdictions.

Tax years that remain subject to examination vary by legal entity but are generally closed in the U.S.

for the tax years prior to 2015 and outside the U.S.

for the tax years ended prior to 2018.

There is a 4 year statute of limitations for Canadian returns based on the date tax assessment is received, not filing date.

Tax assessments are typically received within weeks of filing date.

NOTE 11 - SHARE-BASED COMPENSATION

3 unchanged sentences

On June 16, 2023, our shareholders approved an amendment to the DXP Enterprises, Inc.

2016 Omnibus Incentive Plan (the “2016 Plan”) to increase the number of shares that can be issued under the 2016 Plan from 500,000 shares to a total of 1,000,000 shares, which represents an increase of 500,000 shares (the “Amendment”), which authorized grants of restricted stock awards, restricted stock units (“RSUs”), performance awards, options, investment rights, and cash-based awards.

This plan authorizes the issuance of up to 1,000,000 shares of our common stock.

2016 Omnibus Incentive Plan (the “2016 Plan”) to increase the number of shares that can be issued under the 2016 Plan from 1,000,000 shares to a total of 1,250,000 shares, which represents an increase of 250,000 shares (the “Amendment”), which authorized grants of restricted stock awards, restricted stock units, performance awards, options, investment rights, and cash-based awards.

Under the 2016 Plan approved by our shareholders, directors, consultants and employees may be awarded shares of the Company's common stock.

32 unchanged sentences

Related income tax benefits recognized in earnings in the years ended December 31, 2023, December 31, 2022 and December 31, 2021 were approximately $ 0.8 million, $ 0.5 million and $ 0.5 million, respectively.

The aggregate grant-date fair value of vested shares for the years ended December 31, 2023, December 31, 2022 and December 31, 2021 was $ 2.0 million, $ 1.9 million and $ 3.5 million, respectively.

Unrecognized compensation expense under the 2016 Plan at December 31, 2023, December 31, 2022 and December 31, 2021 was $ 5.9 million, $ 3.1 million and $ 2.1 million, respectively.

5 unchanged sentences

2023 2022 2021

Basic earnings per share:

Weighted average shares outstanding 16,870 18,631 18,949

Net income (loss) attributable to DXP Enterprises, Inc.

Net income attributable to DXP Enterprises, Inc.

$ 68,812 $ 48,155 $ 16,496

Convertible preferred stock dividend ( 90 ) ( 90 ) ( 90 )

Net income (loss) attributable to common shareholders $ 48,065 $ 16,406 $ ( 29,359 )

Series B convertible preferred stock dividend

( 90 ) ( 90 ) ( 90 )

Net income attributable to common shareholders

68,722 48,065 16,406

Per share amount $ 4.07 $ 2.58 $ 0.87

Diluted earnings per share:

Weighted average shares outstanding 16,870 18,631 18,949

1 unchanged sentence

Total dilutive shares 17,710 19,471 19,789

Net income (loss) attributable to common shareholders $ 48,065 $ 16,406 $ ( 29,359 )

Convertible preferred stock dividend 90 90 —

Net income (loss) attributable to DXP Enterprises, Inc.

Net income attributable to common shareholders

$ 68,722 $ 48,065 $ 16,406

Series B convertible preferred stock dividend

Net income attributable to DXP Enterprises, Inc.

68,812 48,155 16,496

Per share amount $ 3.89 $ 2.47 $ 0.83

3 unchanged sentences

The preferred stock is convertible into 840,000 shares of common stock.

For the twelve months ended December 31, 2020, we excluded from the diluted EPS calculation 840,000 convertible preferred shares since the effect would have been antidilutive.

NOTE 13 – CAPITAL STOCK

3 unchanged sentences

The holders of Series A preferred stock are entitled to one-tenth of a vote per share on all matters presented to a vote of shareholders generally, voting as a class with the holders of common stock, and are not entitled to any dividends or distributions other than in the event of a liquidation of the Company, in which case the holders of the Series A preferred stock are entitled to $ 100 liquidation preference per share.

Series B Preferred Stock

Series B Convertible Preferred Stock

Each share of the Series B convertible preferred stock is convertible into 56 shares of common stock and a monthly dividend per share of $ .50 .

The holders of the Series B convertible stock are entitled to a $ 100 liquidation preference per share after payment of the distributions to the holders of the Series A preferred stock and to one-tenth of a vote per share on all matters presented to a vote of shareholders generally, voting as a class with the holders of the common stock.

The activity related to outstanding common stock and common stock held in treasury was as follows:

The activity related to outstanding common stock and common stock held in treasury was as follows ( in thousands ):

2023 2022 2021

Common Stock:

Quantity (in thousands)

Balance, beginning of period 17,531 18,468 19,041

5 unchanged sentences

NOTE 14 - SHARE REPURCHASE

On May 12, 2021, the Company announced that its Board of Directors authorized a share repurchase program (the “program”) under which up to $ 85.0 million worth or 1.5 million shares of its outstanding common stock may be acquired in the open market or through privately negotiated agreements over the next 24 months at the discretion of management.

The Company completed the program in December 2022.

On December 15, 2022, the Company announced a new Share Repurchase Program pursuant to which we may repurchase up to $ 85.0 million worth, or 2.8 million shares of the Company's outstanding common stock over the next 24 months.

During the twelve months ended December 31, 2022 the Company repurchased 1.3 million shares for approximately $ 35.2 million compared to 1.2 million shares for approximately $ 33.5 million for the twelve months ended December 31, 2021.

On June 15, 2021, the Company entered into a negotiated share repurchase agreement to repurchase certain shares of its common stock from certain of its shareholders.

Pursuant to the terms of the share repurchase agreement, The Company agreed to pay the shareholders for the repurchased shares over four equal quarterly installments, which are presented within the purchase of treasury stock in the cash flow statement.

During the twelve months ended December 31, 2022, there were two installment payments totaling $ 13.6 million.

There are no further installment payments outstanding as of December 31, 2022.

The following table represents total number of shares purchased, the amount paid, and the average price paid per share under share repurchase programs authorized by our Board of Directors:

Twelve Months Ended December 31,

4 unchanged sentences

Average price paid per share $ 32.06 28.17 28.28

NOTE 16 - SALES OF COMMON STOCK

On May 11, 2020, the Company entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with BMO Capital Markets Corp.

(the “Distribution Agent”) pursuant to which the Company may offer and sell shares of the Company’s common stock, par value $ 0.01 per share, having an aggregate offering amount of up to $ 37,500,000 from time to time through the Distribution Agent.

Sales, if any, of the Company’s common stock pursuant to the Equity Distribution Agreement will be made in “at the market offerings” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended.

During the twelve months ended December 31, 2020, the Company issued and sold 46,000 shares of common stock under the Equity Distribution Agreement, with net proceeds totaling approximately $ 1.1 million, after deducting the Distribution Agent’s commission of approximately $ 26 thousand.

There were no sale of the Company's common stock in 2022 and 2021.

NOTE 15 - SUPPLEMENTAL CASH FLOW INFORMATION

Twelve Months Ended December 31,

2023 2022 2021

Supplemental disclosures of cash flow information

Cash paid for interest

$ 48,954 $ 25,321 $ 19,531

Cash paid for income taxes

21,839 26,179 6,120

Cash paid for finance lease liability

Non-cash investing and financing activities

Shares issued for acquisition

— 5,757 13,524

Assets obtained in exchange for finance lease obligations

$ 15,171 $ — $ —

NOTE 16 - BUSINESS ACQUISITIONS

12 unchanged sentences

2023 Acquisitions

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

2022 Acquisitions

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

("Sullivan").

Sullivan is a leading distributor for the municipal and industrial water and wastewater treatment industries in the states of Ohio, Kentucky, and Indiana.

Sullivan is a leading distributor for the municipal and industrial water and wastewater treatment industries in Ohio, Kentucky, and Indiana.

Sullivan is included within our IPS business segment.

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 stock valued at approximately $ 0.9 million and potential contingent consideration of $ 1.0 million.

For the twelve months ended December 31, 2022, Sullivan contributed sales of $ 1.0 million and operating income of $ 275 thousand.

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.

2 unchanged sentences

Cisco is included within our SC business segment.

The Company engaged third-party valuation specialists to review the Company's critical assumptions such as:

anticipated revenues, anticipated cost, discount rates, probability of earn-out payments, and calculations of the fair value of acquired intangible assets and goodwill in connection with the Cisco acquisition.

Total consideration for the transaction was approximately $ 52.3 million, funded with a mixture of cash on hand of $ 43.4 million, the Company's common stock valued at approximately $ 4.4 million, and potential contingent consideration of $ 4.5 million.

For the twelve months ended December 31, 2022, Cisco contributed sales of $ 32.1 million and operating income of $ 6.5 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.

1 unchanged sentence

("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.

For the twelve months ended December 31, 2022, Drydon contributed sales of $ 5.6 million and operating income of $ 1.1 million.

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.

2 unchanged sentences

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.

For the twelve months ended December 31, 2022, Burlingame contributed sales of $ 2.9 million and operating income of $ 604 thousand.

Goodwill for the transaction totaled approximately $ 0.5 million.

2021 Acquisitions

O n 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 and an issuance of the Company's common stock.

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

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

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

Goodwill for the transaction totaled approximately $ 38.3 million.

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.

Goodwill for the transaction totaled approximately $ 5.3 million.

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.

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.

Pro Forma Financial Results (unaudited)

The following represents the pro forma unaudited revenue and net income as if each of the 2022 acquisitions had been included in the consolidated results of the Company for the full year periods ending December 31, 2022 and 2021, respectively.

In addition, the pro forma results also assume that all of the 2021 acquisitions had been consummated as of January 1, 2020.

The pro forma information is not necessarily indicative of future results:

Fiscal Year Ending December 31,

($ in thousands)

$ 1,499,119 1,174,387

$ 50,983 25,807

Preliminary Purchase Price Allocation and Consideration

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, Florida Valve EMD and Alliance are included within the Company's consolidated statements of operations were not material for the twelve months ended December 31, 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 $ 0.6 million for the twelve months ended December 31, 2023.

Purchase Price Allocation and Consideration

The following tables summarize the estimated fair values of the assets acquired and liabilities assumed at the acquisition date for the 2023 acquisitions, as well as the fair value of the consideration transferred:

Cisco Recognized as of Acquisition Date Measurement Period Adjustments (1)

Cisco Recognized as of Acquisition Date (As Adjusted) All Other Total

Cash $ 4,352 $ — $ 4,352 $ 743 $ 5,095

Amount Recognized as of Acquisition Date

Accounts receivable 2,335

Other receivables — — — 52 52

Inventory 355

10 unchanged sentences

Deferred tax liability ( 679 )

Long-term liabilities assumed ( 24 )

Net assets acquired 3,651

1 unchanged sentence

Goodwill $ 9,768

(1) The measurement period adjustments primarily related to the final valuation of intangible assets related to the acquisition of Cisco.

Of the $ 2.5 million of acquired intangible assets, $ 0.6 million was provisionally assigned to non-compete agreements that are subject to amortization over 5 years, consistent with the terms of the agreements.

1 unchanged sentence

The goodwill total of $ 9.8 million is attributable primarily to expected synergies and the assembled workforce of each entity.

In aggregate, the acquisition-date fair value of the consideration transferred for the four businesses acquired in 2022 totaled $ 67.9 million, which consisted of the following:

In aggregate, the acquisition-date fair value of the consideration transferred for the three businesses acquired in 2023 totaled $ 13.4 million, which consisted of the following:

Purchase Price Consideration (in millions) Total Consideration

Cash payments $ 10.7

Fair value of stock issued 5.8

Contingent consideration 2.7

Total consideration $ 13.4

The fair value of the approximately 267,248 common shares issued was determined based on the closing market price of the Company’s common shares on the respective acquisition date, adjusted for holding restrictions following consummation.

The Company recognized $ 0.6 million of acquisition related costs that were expensed in the current period.

These costs are included in the consolidated income statement in Selling, General and Administrative costs.

The Company also recognized an immaterial amount in costs associated with issuing the shares issued as consideration in the business combination.

Those costs were deducted from the recognized proceeds of issuance within stockholders’ equity.

As third-party or internal valuations are finalized, certain tax aspects of the foregoing transactions are completed and working capital reviews are concluded.

Adjustments may be made to the fair value of assets acquired and in some cases, total purchase price through the end of each measurement period;

generally one year following the applicable acquisition date.

Various adjustments to the fair value of assets acquired and in some cases total purchase price, have been made to certain business combinations since the respective dates of acquisition.

During the twelve months ended December 31, 2022, we recorded measurement-period adjustments that decreased goodwill by approximately $ 4.0 million, primarily for changes in intangible assets acquired and deferred tax liability.

The impact of these adjustments to the consolidated statement of operations were immaterial.

Goodwill recognized in connection with these acquisitions was attributable to the synergies expected to be realized and improvements in the businesses after the acquisitions.

2 unchanged sentences

Contingent Consideration

The acquisitions of Burlingame, Drydon, Cisco and Sullivan included a contingent consideration arrangement that requires additional consideration to be paid based on the achievement of annual EBITDA targets over a one to three year period.

The acquisitions of Florida Valve, Riordan and Alliance included a contingent consideration arrangement that requires additional consideration to be paid based on the achievement of annual EBITDA targets over a one to three year period.

The range of undiscounted amounts the Company may be required to pay under the contingent consideration agreement is between zero and $ 4.6 million.

3 unchanged sentences

Changes in the fair value measurement each period reflect the passage of time as well as the impact of adjustments, if any, to the likelihood of achieving the specified targets.

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

The fair value measurement includes earnings forecasts which are a Level 3 measurement as discussed in Note 5 - Fair Value of Financial Assets and Liabilities .

4 unchanged sentences

NOTE 18 - EMPLOYEE BENEFIT PLANS

The Company offers a 401(k) plan which is eligible to substantially all employees in the United States.

The Company offers a 401(k) plan which is eligible to substantially all employees in the U.S.

For the year ended December 31, 2023, the Company elected to match employee contributions at a rate of 50 percent of up to 4 percent of salary deferral.

The Company contributed $ 5.5 million, $ 2.8 million, and $ 1.7 million to the 401(k) plan in the years ended December 31, 2023, 2022, and 2021, respectively.

In March 2020, the Company suspended the employee match program which was reinstated in January 2021.

NOTE 20 - OTHER COMPREHENSIVE INCOME

Other comprehensive income generally represents all changes in shareholders’ equity during the period, except those resulting from investments by, or distributions to, shareholders.

During 2012 and 2013, the Company acquired four entities that operate in Canada.

These Canadian entities maintain financial data in Canadian dollars.

Upon consolidation, the Company translates the financial data from these foreign subsidiaries into U.S.

dollars and records cumulative translation adjustments in other comprehensive income.

The Company recorded $( 2.4 ) million, $ 0.7 million and $ 2.3 million in translation adjustments, net of tax, in other comprehensive income during the years ended December 31, 2022, 2021 and 2020, respectively.

NOTE 19 - REVENUE

The Company’s disaggregated revenue represents our business of selling MROP products and services to a variety of end markets based upon our geography and our reportable business segments - Service Centers, Innovative Pumping Solutions and Supply Chain Services.

The Company disaggregates revenue based upon our geography and our reportable segments - Service Centers, Innovative Pumping Solutions and Supply Chain Services.

Each of our geographic and reportable business segments are impacted and influenced by varying factors, including the macroeconomic environment, maintenance and capital spending and commodity prices and exploration and production activity.

10 unchanged sentences

NOTE 20 – SEGMENT REPORTING

The Company has three operating segments - Service Centers, Innovative Pumping Solutions and Supply Chain Services.

The Company has three operating and reportable segments - Service Centers, Innovative Pumping Solutions and Supply Chain Services:

the Service Centers segment is engaged in providing maintenance, MRO products and equipment, including logistics capabilities, to industrial customers.

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

The Innovative Pumping Solutions segment fabricates and assembles custom-made pump packages, remanufactures pumps and manufactures branded private label pumps.

The Supply Chain Services segment provides a wide range of MRO products and manages all or part of a customer's supply chain, including warehouse and inventory management.

These business or operating segments were determined primarily on the distribution channels of the products and services offered as and the nature of the customer markets and the primary driver of the customers spend.

Business segments are defined components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

The Company's chief operating decision maker directs the allocation of resources to operating or business segments based on various metrics of each respective segment.

The allocation of resources across the operating segments is dependent upon, among other factors, the operating segments's historical or future expected operating margins;

the operating segments's historical or future expected returns on capital;

Business segments are defined components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance.

Our CODM is the Chief Executive Officer.

The Company's CODM directs the allocation of resources to operating or business segments based on revenue, operating income, and capital expenditures of each respective segment.

The allocation of resources across the operating segments is dependent upon, among other factors, the operating segments' historical or future expected operating margins;

the operating segments' historical or future expected returns on capital;

outlook within a specific market;

3 unchanged sentences

and competitive landscape and intensity.

The Company’s reportable business segments are:

Service Centers, Innovative Pumping Solutions and Supply Chain Services.

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

The Innovative Pumping Solutions segment fabricates and assembles custom-made pump packages, remanufactures pumps and manufactures branded private label pumps.

The Supply Chain Services segment provides a wide range of MRO products and manages all or part of a customer's supply chain, including warehouse and inventory management.

The high degree of integration of the Company’s operations necessitates the use of a substantial number of allocations and apportionments in the determination of business segment information.

27 unchanged sentences

Amortization of intangibles 18,231 18,915 17,197

Impairment and other charges — — 59,883

Corporate and other expense, net 72,708 60,074 65,910

10 unchanged sentences

Any related party transaction will be reviewed by the Audit Committee of the Board of Directors to determine, among other things, the benefits of any transaction to the Company, the availability of other sources of comparable products or services and whether the terms of the proposed transaction are comparable to those provided to unrelated third parties.

For the year ended December 31, 2022, the Company incurred approximately $ 1.9 million in lease expenses to entities controlled by the Company’s Chief Executive Officer, David Little.

For the year ended December 31, 2023, the Company incurred approximately $ 1.8 million in lease expenses to entities controlled by the Company’s Chief Executive Officer.

NOTE 22 - SUBSEQUENT EVENTS

On January 1, 2024 the Company completed the acquisition of Hennesy Mechanical Sales LLC (“Hennesy”).

Hennesy is a leading manufacturer's representative in the municipal water and wastewater treatment market and provides industrial pump sales, service and repair in Arizona, New Mexico and West Texas.

The preliminary purchase price allocation is not complete as of the date of this financial issuance and will be an ongoing process for up to one year subsequent to the closing date of the transaction.

On February 1, 2024 the Company completed the acquisition of Kappe Associates, Inc.

Kappe is headquartered in Frederick, Maryland and operates out of three locations servicing Maryland, the District of Columbia, Delaware, Virginia, Pennsylvania, Southern New Jersey, and West Virginia.

Kappe is a leading distributor and manufacturers’ representative of pumps, controls and process equipment focused on serving the water and wastewater industry.

On March 1, 2024 the Company completed the acquisition of Pro-Seal, Inc.

(“Pro-Seal”).

Pro-Seal is a leading distributor of pumping systems, fluid sealing and related seal support systems, industrial pumping equipment and services as well as lubricants in Michigan and Alaska.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data