What changed in this filing

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Item 1. Financial Statements

2024-05-09 compared with 2023-11-09 · 137 added, 181 removed, 256 unchanged (55% of the section changed)

2 unchanged sentences

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

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

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

2023 2022 2023 2022

Three Months Ended March 31,

Sales $ 412,635 $ 424,267

3 unchanged sentences

Income from operations 29,131 35,399

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

Other income, net ( 1,968 ) ( 469 )

Interest expense 15,544 11,521

Income before income taxes 15,555 24,347

Provision for income tax expense 5,766 5,097 19,339 13,402

Provision for income taxes

Net income 11,332 17,580

Net loss attributable to noncontrolling interest

— ( 885 ) — ( 938 )

Net income attributable to DXP Enterprises, Inc.

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

Preferred stock dividend 23 23

13 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands) (unaudited)

September 30, 2023 December 31, 2022

(in thousands, except share amounts) (unaudited)

March 31, 2024 December 31, 2023

Current assets:

6 unchanged sentences

Prepaid expenses and other current assets 19,808 18,044

Income taxes receivable 393 2,493

Total current assets 616,832 648,554

15 unchanged sentences

Total current liabilities 229,402 224,165

Long-term debt, net of unamortized debt issuance costs 408,105 409,205

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

520,217 520,697

Long-term operating lease liabilities 38,914 34,336

Other long-term liabilities 20,158 17,359

Deferred income taxes liability 2,068 4,892

Total long-term liabilities 579,289 572,392

2 unchanged sentences

Shareholders' equity:

Series A and B preferred stock, $ 1.00 par value each;

1,000,000 shares authorized each

Series A preferred stock, $ 1.00 par value;

1,000,000 shares authorized

Series B preferred stock, $ 1.00 par value;

1,000,000 shares authorized

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

13 unchanged sentences

(in thousands) (unaudited)

Nine Months Ended September 30,

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

3 unchanged sentences

Amortization of intangibles and fixed assets

(Recovery of) provision for credit losses

( 1,200 ) 498

Provision for (recovery of) credit losses

Payment of contingent consideration liability in excess of acquisition-date fair value ( 17 ) —

3 unchanged sentences

Deferred income taxes ( 3,056 ) ( 2,799 )

Changes in operating assets and liabilities:

Changes in operating assets and liabilities, net of effects of businesses acquired:

Accounts receivable, net

2,295 ( 59,563 )

Costs and estimated profits in excess of billings 7,052 ( 18,378 )

10 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings on asset-backed credit facility 7,870 577,999

Repayments on asset-backed credit facility ( 7,870 ) ( 537,393 )

Repayments under term loan facility ( 1,375 ) ( 1,092 )

Debt issuance costs

Payment for acquisition contingent consideration liability ( 983 ) —

3 unchanged sentences

Principal payments on finance leases ( 896 ) —

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

Net cash used in financing activities

$ ( 18,146 ) $ ( 10,354 )

Effect of foreign currency on cash ( 111 ) ( 35 )

8 unchanged sentences

(in thousands) (unaudited)

Series A preferred stock Series B preferred stock Common stock Paid-in capital Retained earnings Treasury stock Non controlling interest Accum other comp loss Total equity

Series A preferred stock Series B preferred stock Common stock Paid-in capital Retained earnings Treasury stock Accum other comp loss Total equity

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

Preferred dividends paid — — — — ( 23 ) — — ( 23 )

Restricted stock compensation expense — — — 476 — — — — 476

Tax related items for share based awards — — — ( 104 ) — — — — ( 104 )

Currency translation adjustment — — — — — — — 98 98

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

— — — — 17,580 — — — 17,580

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

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

Restricted stock compensation expense — — — 871 — — — — 871

Tax related items for share based awards — — — ( 328 ) — — — — ( 328 )

Currency translation adjustment — — — — — — — 659 659

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

Compensation expense for restricted stock

— — — 864 — — — 864

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

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

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

Tax related items for share based awards — — — ( 54 ) — — — ( 54 )

2 unchanged sentences

— — — — 11,332 — — 11,332

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

DXP ENTERPRISES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(in thousands) (unaudited)

Series A preferred stock Series B preferred stock Common stock Paid-in capital Retained earnings Treasury stock Non controlling interest Accum other comp loss Total equity

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

Preferred dividends paid — — — — ( 23 ) — — — ( 23 )

Restricted stock compensation expense — — — 370 — — — — 370

Tax related items for share based awards — — — ( 159 ) — — — — ( 159 )

Issuance of shares of common stock — — — 527 — — — — 527

Currency translation adjustment — — — — — — — 1,669 1,669

Repurchases of shares — — — — — ( 1,513 ) — — ( 1,513 )

Net income (loss) — — — — 12,642 — ( 113 ) — 12,529

Balance at March 31, 2024 $ 1 $ 15 $ 345 $ 217,292 $ 330,580 $ ( 140,915 ) $ ( 31,854 ) $ 375,464

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

Restricted stock compensation expense — — — 493 — — — — 493

Tax related items for share based awards — — — ( 131 ) — — — — ( 131 )

Issuance of shares of common stock — — 2 4,215 — — — — 4,217

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

— — — — 14,433 — 60 — 14,493

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

Series A preferred stock Series B preferred stock Common stock Paid-in capital Retained earnings Treasury stock Accum other comp loss Total equity

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

Preferred dividends paid — — — — ( 23 ) — — ( 23 )

Restricted stock compensation expense — — — 505 — — — — 505

Compensation expense for restricted stock — — — 476 — — — 476

Tax related items for share based awards — — — ( 104 ) — — — ( 104 )

Issuance of shares of common stock — — 148 865 — — — — 1,013

Currency translation adjustment — — — — — — 98 98

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

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

Balance at September 30, 2022

— — — — 17,580 — — 17,580

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

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

16 unchanged sentences

GAAP are required.

The unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2022 that are included in our annual report on Form 10-K filed with the SEC on April 17, 2023 (“Annual Report”).

The results of operations for the nine months ended September 30, 2023 are not necessarily indicative of results expected for the full fiscal year.

The unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2023 that are included in our annual report on Form 10-K filed with the SEC on March 11, 2024 (“Annual Report”).

The results of operations for the three months ended March 31, 2024 are not necessarily indicative of results expected for the full fiscal year.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary for the fair statement of the Company's financial position, results of operations and cash flows for the interim periods presented.

The ownership interest of noncontrolling investors of the Company's subsidiaries are recorded as noncontrolling interest.

All inter-company accounts and transactions have been eliminated in consolidation.

During the fourth quarter of 2022, the Company became aware of a financing cash flow error related to borrowings and repayments on our asset-backed credit facility as a result of the Company inadvertently duplicating journal entries, resulting in the overstatement of financing cash flow activities from borrowings and repayments related to our revolving credit facility.

Management's assessment concluded that the errors were not material, individually or in the aggregate, to any prior period unaudited condensed consolidated financial statements.

The Company concluded to revise prior period unaudited condensed consolidated financial statements the next time they were reported.

The unaudited condensed consolidated financial statements included herein, have been revised to correct for the impact of these errors.

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

As Previously Reported Adjustments Revised

Proceeds from asset-backed credit facility $ 605,257 $ ( 27,258 ) $ 577,999

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

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

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

All intercompany accounts and transactions have been eliminated in consolidation.

NOTE 3 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

The Company has implemented all new accounting pronouncements that are in effect and is evaluating any new accounting pronouncements that may impact its financial statements, including the new Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers standard.

The Company does not believe the new accounting pronouncement will have a material impact on its financial position or results of operations for recent acquisitions.

Accounting Pronouncements Not Yet Adopted

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.

The Company considers the applicability and impact of all Accounting Standard Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”).

ASUs not listed within this Quarterly Report on Form 10-Q were assessed and determined as either not applicable or not material to the Company’s consolidated financial position or result of operations.

NOTE 4 - FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

5 unchanged sentences

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

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

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

("Cisco"), Sullivan Environmental Technologies, Inc.

("Sullivan"), Florida Valve & Equipment, LLC and Environmental MD, Inc.

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

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

As of March 31, 2024, we recorded $ 6.1 million in other current and other long-term liabilities for contingent consideration associated with the recent acquisitions.

The following table provides a reconciliation of the beginning and ending balances and gains or losses recognized during the three months ended March 31, 2024 ( in thousands ):

Contingent Consideration

*Beginning balance at December 31, 2023 $ 8,753

Acquisitions and settlements:

Acquisitions ( Note 12 )

1 unchanged sentence

Total remeasurement adjustments:

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

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

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

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

Changes in fair value recorded in other income, net

*Ending Balance at March 31, 2024 $ 13,667

*Amounts included in other current liabilities were $ 8.1 million and $ 5.4 million for the periods ending March 31, 2024 and December 31, 2023, respectively.

Amounts included in other long-term liabilities were $ 5.6 million and $ 3.4 million for the periods ending March 31, 2024 and December 31, 2023, respectively.

Sensitivity to Changes in Significant Unobservable Inputs

The significant Level 3 unobservable inputs used in the fair value measurement of contingent consideration related to the acquisitions of Drydon, Cisco, Sullivan, Florida Valve EMD, and Riordan are annualized EBITDA forecasts developed by the Company's management and the probability of achievement of those EBITDA results.

The significant Level 3 unobservable inputs used in the fair value measurement of contingent consideration related to the acquisitions are annualized EBITDA forecasts developed by the Company's management and the probability of achievement of those EBITDA results.

The discount rate used in the calculations was 10.6 percent.

Changes in our unobservable inputs in isolation would result in a change to our fair value measurement.

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

Other financial instruments not measured at fair value on the Company's unaudited condensed consolidated balance sheets at September 30, 2023 and December 31, 2022, but which require disclosure of their fair values include:

As of March 31, 2024, the maximum amount of contingent consideration payable under these arrangements is $ 17.5 million.

Other financial instruments not measured at fair value on the Company's unaudited condensed consolidated balance sheets at March 31, 2024 and December 31, 2023, but which require disclosure of their fair values include:

cash, restricted cash, accounts receivable, trade accounts payable and accrued expenses.

The Company believes that the estimated fair value of such instruments at September 30, 2023 and December 31, 2022 approximates their carrying value as reported on the unaudited condensed consolidated balance sheets due to the relative short maturity of these instruments.

The Company believes that the estimated fair value of such instruments at March 31, 2024 and December 31, 2023 approximates their carrying value as reported on the unaudited condensed consolidated balance sheets due to the relative short maturity of these instruments.

See Note 8 - Long-term Debt for fair value disclosures on our asset-backed line of credit and term loan debt under our syndicated credit agreement facilities.

NOTE 5 – INVENTORIES

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 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 ):

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Finished goods $ 96,999 $ 94,031

6 unchanged sentences

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

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Costs incurred on uncompleted contracts $ 91,469 $ 92,363

3 unchanged sentences

Net $ 27,064 $ 32,814

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

September 30, 2023 December 31, 2022

Such amounts were included in the accompanying unaudited condensed consolidated balance sheets for March 31, 2024 and December 31, 2023 under the following captions ( in thousands ):

March 31, 2024 December 31, 2023

Costs and estimated profits in excess of billings $ 35,259 $ 42,323

2 unchanged sentences

Net $ 27,064 $ 32,814

During the nine months ended September 30, 2023, $ 10.0 million of the balances that were previously classified as contract liabilities at the beginning of the period were recognized in revenues.

During the three months ended March 31, 2024 and 2023, $ 1.4 million and $ 9.7 million of the balances that were previously classified as contract liabilities at the beginning of the period were recognized in revenues, respectively.

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

1 unchanged sentence

Income tax expense during interim periods is based on our estimated annual effective income tax rate plus any discrete items, which are recorded in the period in which they occur.

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

Compared to the U.S.

statutory rate for the three months ended September 30, 2023, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions recorded for research and development tax credits and was partially offset by research and development tax credits and other tax credits.

Our effective tax rate from continuing operations was a tax expense of 26.8 percent for the nine months ended September 30, 2023 compared to a tax expense of 25.1 percent for the nine months ended September 30, 2022.

Compared to the U.S.

statutory rate for the nine months ended September 30, 2023, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions recorded for research and development tax credits and was partially offset by research and development tax credits and other tax credits.

Our effective tax rate from continuing operations was a tax expense of 27.2 percent for the three months ended March 31, 2024 compared to a tax expense of 27.9 percent for the three months ended March 31, 2023.

Compared to the U.S.

statutory rate for the nine months ended September 30, 2022, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses and uncertain tax positions for research and development tax credits and was partially offset by research and development tax credits and other tax credits.

statutory rate for the three months ended March 31, 2024, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, earnout payments, and uncertain tax positions recorded for research and development tax credits and was partially offset by research and development tax credits and other tax credits.

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

The Organization of Economic Cooperation and Development (OECD) continues to release additional guidance, including administrative guidance on how Pillar Two rules should be interpreted and applied by jurisdictions as they adopt Pillar Two.

A number of countries have utilized the administrative guidance as a starting point for legislation that went into effect January 1, 2024.

As of March 31, 2024 DXP anticipates the impact of Pillar Two to be immaterial to the Company based on current legislation that has been enacted to date.

NOTE 8 – LONG-TERM DEBT

The components of the Company's long-term debt consisted of the following ( in thousands ):

September 30, 2023 December 31, 2022

Carrying Value (1)

Fair Value Carrying Value (1)

March 31, 2024 December 31, 2023

ABL Revolver $ — $ —

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

Senior Secured Term Loan B due October 13, 2030 (1)

547,250 548,625

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

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

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

Credit Agreements

547,250 548,625

current maturities

( 5,500 ) ( 5,500 )

Total long-term debt

$ 541,750 $ 543,125

Unamortized discount and debt issuance costs

21,533 22,428

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

$ 520,217 $ 520,697

(1) The fair value of the Term Loan B due October 13, 2030 was $ 551.4 million and $ 554.1 million as of March 31, 2024 and December 31, 2023, respectively.

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 Term Loan Amendment were $ 11.7 million, which is being amortized to interest expense using the interest method over the remaining maturity of the Senior Secured Term Loan B.

The interest rate for the Senior Secured Term Loan B was 10.29 % and 10.44 % as of March 31, 2024 and December 31, 2023, respectively.

In connection with the 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 March 31, 2024 there was $ 547.3 million outstanding under the Senior Secured Term Loan B.

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.

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

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 matures on July 19, 2027.

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

On November 22, 2022, the Company entered into an amendment to its existing $ 330 million Senior Secured Term Loan (the "Term Loan Amendment"), borrowing an additional $ 105 million that was added to the existing $ 330 million Senior Secured Term Loan (the “Term Loan Agreement”).

As of September 30, 2023 there was $ 424.9 million outstanding under the Term Loan Agreement.

The Term Loan Amendment amends and supplements the Term Loan Agreement, dated as of December 23, 2020, and provides for among other things, $ 105.0 million in new incremental commitments.

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

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

Interest accrues on the Term Loan at a rate equal to SOFR plus a margin of 5.25 percent 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 percent of excess cash flow--reducing to (i.) 25 percent if our total leverage ratio is no more than 3.00 to 1.00 and (ii.) zero percent if our total leverage ratio is no more than 2.50 to 1.00.

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

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 March 31, 2024 the unused line fee was 0.375 % and there were no amounts outstanding under the ABL Revolver.

As of March 31, 2024, the borrowing availability under our credit facility was $ 131.8 million compared to $ 132.1 million at December 31, 2023, primarily as a result of outstanding letters of credit.

The interest rate for the ABL Revolver was 8.75 % as of March 31, 2024 and December 31, 2023, respectively.

Financial Covenants:

The Company's principal financial covenants under the ABL Credit Agreement and Term Loan B Agreement include:

Fixed Charge Coverage Ratio – The Fixed Charge Coverage Ratio under the ABL Credit Agreement is defined as the ratio for the most recently completed four-fiscal quarter period, of (a) EBITDA minus capital expenditures (excluding (i) those financed or funded with debt (other than the ABL Loans), (ii) the portion thereof funded with the net proceeds from asset dispositions of equipment or real property which the Company is permitted to reinvest pursuant to the Term Loan and (iii) the portion thereof funded with the net proceeds of casualty insurance or condemnation awards in respect of any equipment and real estate which DXP is not required to use to prepay the ABL Loans pursuant to the Term Loan B Agreement or with the proceeds of casualty insurance or condemnation awards in respect of any other property) minus cash taxes paid (net of cash tax refunds received during such period), to (b) fixed charges.

The Company is restricted from allowing its fixed charge coverage ratio to 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 March 31, 2024, the Company's Fixed Charge Coverage Ratio was 2.28 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 March 31, 2024, is either equal to or less than as indicated in the table below:

Fiscal Quarter Secured Leverage Ratio

March 31, 2024 5.75 :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 March 31, 2024, the Company’s Secured Leverage Ratio was 2.27 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;

plus to the extent deducted from consolidated net income in such period:

(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.

The Company was in compliance with all financial covenants as of March 31, 2024.

As of March 31, 2024, the maturities of long-term debt for the next five years and thereafter were as follows ( in thousands ):

Thereafter 521,125

Total $ 547,250

NOTE 9 - EARNINGS PER SHARE

2 unchanged sentences

The following table sets forth the computation of basic and diluted earnings per share for the periods indicated ( in thousands, except per share data ):

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

2023 2022 2023 2022

Three Months Ended March 31,

Basic earnings per share:

19 unchanged sentences

The Company's reportable business segments are:

Service Centers, Innovative Pumping Solutions and Supply Chain Services.

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

The Service Centers segment is engaged in providing MRO products, equipment and integrated services, including logistics capabilities, to business-to-business customers.

3 unchanged sentences

Sales are shown net of inter-segment eliminations.

Our chief operating decision maker ("CODM") is the Chief Executive Officer.

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

As a part of the Company's annual business planning, the CODM reviews our reportable segment composition and financial performance.

As a result of this review, on January 1st, 2024, we moved certain branch locations previously reported under our IPS segment to our SC segment.

Prior period segment disclosures have been recast.

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

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

2023 2022 2023 2022

Three Months Ended March 31,

Service Centers $ 288,435 $ 305,813

8 unchanged sentences

The following table presents reconciliations of income from operations for reportable segments to the consolidated income before taxes ( in thousands ):

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

2023 2022 2023 2022

Three Months Ended March 31,

Income from operations for reportable segments $ 52,552 $ 60,524

4 unchanged sentences

Interest expense 15,544 11,521

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

Other income, net

( 1,968 ) ( 469 )

Income before income taxes $ 15,555 $ 24,347

NOTE 12 - BUSINESS ACQUISITIONS

On May 1, 2023, the Company completed the acquisition of 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 future 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, 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 future consideration of $ 2.2 million.

Goodwill for the transaction totaled approximately $ 5.9 million.

In aggregate, the acquisition-date fair value of the consideration transferred for the two businesses totaled $ 11.7 million, which consisted of the following ( in thousands ):

The Company enters into strategic acquisitions in an effort to better service existing customers and to attract new customers.

A summary of the allocation of the total purchase consideration of our three business acquisitions during the three months ended March 31, 2024 is presented as follows ( in thousands ):

Purchase Price Consideration

2 unchanged sentences

Total purchase price consideration 46,454

Pro forma results of operations information have not been presented, as the effect of the recent acquisitions is not material.

The operating results of Riordan and Florida Valve EMD are included within the Company's consolidated statements of operations since the acquisition date of May 1, 2023 and were not material for the nine months ended September 30, 2023.

Pursuant to U.S.

GAAP, costs incurred to complete the acquisitions as well as costs incurred to integrate into the Company’s operations are expensed as incurred.

Transaction-related costs incurred, which are included within selling, general, and administrative expenses in the consolidated statements of operations, were not material for the nine months ended September 30, 2023.

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

Accounts receivable 2,236

Inventory 355

Other current assets 134

Non-compete agreements 595

Customer relationships 1,708

Property and equipment 41

Other assets 5

Assets acquired 5,426

Current liabilities assumed ( 1,395 )

Other long term liabilities ( 23 )

Deferred tax liability ( 538 )

Net assets acquired 3,470

Total Consideration 11,698

Goodwill $ 8,228

Of the $ 2.3 million of acquired intangible assets, $ 0.6 million was provisionally assigned to non-compete agreements that are subject to amortization over 5 years, coinciding with the terms of the agreements.

In addition, $ 1.7 million was assigned to customer relationships and will be amortized over a period of 8 years.

Net Tangible Assets Acquired

Purchased Intangible Assets

The total purchase consideration related to our acquisitions during the three months ended March 31, 2024 consisted primarily of cash consideration.

The total cash and cash equivalents acquired for these acquisitions was $ 1.2 million.

Transaction-related costs included within selling, general, and administrative expenses in the consolidated statements of operations were not material for the three months ended March 31, 2024.

The Company makes an initial allocation of the purchase price at the date of acquisition based upon its estimate of the fair value of the acquired assets and assumed liabilities.

Additional information that existed as of the acquisition date but at that time was unknown to us may become known during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date.

The goodwill total of approximately $ 27.2 million is attributable primarily to expected synergies and the assembled workforce of each entity and is generally not deductible for tax purposes.

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

These costs are included in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income in Selling, General and Administrative costs.

$ 6.9 million of goodwill was assigned to our SC segment and $ 20.3 million was assigned to our IPS segment relating to these acquisitions.

The operating results of these acquisitions are included within the Company's consolidated statements of operations from the date of acquisition.

Pro forma results of operations information have not been presented, as the effects of the acquisitions were not material to our financial results.

Of the $ 8.2 million of acquired intangible assets, $ 0.9 million was provisionally assigned to non-compete agreements that are subject to amortization over 5 years.

In addition, $ 7.2 million was assigned to customer relationships and will be amortized over a period of 8 years.

NOTE 13 - SHARE REPURCHASES

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

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

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

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

Three Months Ended March 31,

(in thousands, except per share data)

Total number of shares purchased 326.4 339.5

2 unchanged sentences

NOTE 14 - SUPPLEMENTAL CASH FLOW INFORMATION

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

Supplemental disclosures of cash flow information:

1 unchanged sentence

Cash paid for income taxes 14,693 379

Cash paid for finance lease liability

Shares issued for acquisition

Non-cash investing and financing activities:

Assets obtained in exchange for finance lease obligations

NOTE 15 - SUBSEQUENT EVENT

Senior Secured Term Loan B

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

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

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

Treasury shares repurchase accruals

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements