What changed in this filing

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Item 1. Financial Statements

2024-08-08 compared with 2024-05-09 · 84 added, 65 removed, 328 unchanged (31% of the section changed)

5 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Sales $ 445,556 $ 428,040 $ 858,191 $ 852,307

7 unchanged sentences

Provision for income taxes

6,310 6,805 10,534 13,573

Net income 16,693 19,054 28,025 36,634

15 unchanged sentences

(in thousands, except share amounts) (unaudited)

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Current assets:

50 unchanged sentences

(in thousands) (unaudited)

Three Months Ended March 31,

Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

12 unchanged sentences

Accounts receivable, net

( 3,085 ) 3,815

Costs and estimated profits in excess of billings 5,561 ( 23,151 )

10 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings on asset-backed credit facility — 7,870

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

Repayments under term loan facility ( 2,750 ) ( 2,184 )

26 unchanged sentences

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

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

Compensation expense for restricted stock

— — — 1,212 — — — 1,212

Tax related items for share based awards — — — ( 1,701 ) — — — ( 1,701 )

Currency translation adjustment — — — — — — 93 93

Repurchases of shares — — — — — ( 7,058 ) — ( 7,058 )

— — — — 16,693 — — 16,693

Balance at June 30, 2024 $ 1 $ 15 $ 345 $ 216,803 $ 347,251 $ ( 147,973 ) $ ( 31,761 ) $ 384,681

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

7 unchanged sentences

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 )

— — — — 19,054 — — 19,054

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

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

17 unchanged sentences

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.

The results of operations for the six months ended June 30, 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.

All intercompany accounts and transactions have been eliminated in consolidation.

NOTE 3 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS

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.

Recent Accounting Standards or Updates Not Yet Effective

Segment Reporting In November 2023, the FASB issued an accounting standard update that expands the disclosure requirements for reportable segments, primarily through enhanced disclosures around significant segment expenses.

The accounting standard update will be effective for our fiscal 2024 Form 10-K on a retrospective basis, and early adoption is permitted.

We are currently evaluating the impact of this accounting standard update on our segment disclosures.

Improvements on Income Tax Disclosures In December 2023, the FASB issued an accounting standard update expanding the requirements for disclosure of disaggregated information about the effective tax rate reconciliation and income taxes paid.

The accounting standard update will be effective for our fiscal 2025 Form 10-K.

We are currently evaluating the impact of this accounting standard update on our income tax disclosures.

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 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 ):

As of June 30, 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 six months ended June 30, 2024 ( in thousands ):

Contingent Consideration

4 unchanged sentences

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.

*Ending Balance at June 30, 2024 $ 10,056

*Amounts included in other current liabilities were $ 5.6 million and $ 5.4 million for the periods ending June 30, 2024 and December 31, 2023, respectively.

Amounts included in other long-term liabilities were $ 4.5 million and $ 3.4 million for the periods ending June 30, 2024 and December 31, 2023, respectively.

Sensitivity to Changes in Significant Unobservable Inputs

2 unchanged sentences

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

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:

As of June 30, 2024, the maximum amount of contingent consideration payable under these arrangements is $ 12.7 million.

Other financial instruments not measured at fair value on the Company's unaudited condensed consolidated balance sheets at June 30, 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 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.

The Company believes that the estimated fair value of such instruments at June 30, 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.

3 unchanged sentences

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

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Finished goods $ 94,104 $ 94,031

6 unchanged sentences

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

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Costs incurred on uncompleted contracts $ 95,844 $ 92,363

3 unchanged sentences

Net $ 24,449 $ 32,814

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

Such amounts were included in the accompanying unaudited condensed consolidated balance sheets for June 30, 2024 and December 31, 2023 under the following captions ( in thousands ):

June 30, 2024 December 31, 2023

Costs and estimated profits in excess of billings $ 36,741 $ 42,323

2 unchanged sentences

Net $ 24,449 $ 32,814

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.

During the six months ended June 30, 2024 and 2023, $ 2.9 million and $ 10.0 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 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.

Our effective tax rate from continuing operations was a tax expense of 27.4 percent for the three months ended June 30, 2024 compared to a tax expense of 26.3 percent for the three months ended June 30, 2023.

Compared to the U.S.

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.

statutory rate for the three months ended June 30, 2024, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, contingent consideration 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.

Our effective tax rate from continuing operations was a tax expense of 27.3 percent for the six months ended June 30, 2024, compared to a tax expense of 27.0 percent for the six months ended June 30, 2023.

Compared to the U.S.

statutory rate for the six months ended June 30, 2024, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, contingent consideration 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.

1 unchanged sentence

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.

As of June 30, 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 ):

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

ABL Revolver $ — $ —

10 unchanged sentences

$ 519,735 $ 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.

(1) The fair value of the Term Loan B due October 13, 2030 was $ 550.7 million and $ 554.1 million as of June 30, 2024 and December 31, 2023, respectively.

Senior Secured Term Loan B:

3 unchanged sentences

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.

The interest rate for the Senior Secured Term Loan B was 10.16 % and 10.44 % as of June 30, 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.

1 unchanged sentence

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.

As of June 30, 2024 there was $ 545.9 million outstanding under the Senior Secured Term Loan B.

ABL Revolver:

4 unchanged sentences

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 ):

At June 30, 2024 the unused line fee was 0.375 % and there were no amounts outstanding under the ABL Revolver.

As of June 30, 2024, the borrowing availability under our credit facility was $ 131.4 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 June 30, 2024 and December 31, 2023, respectively.

As of June 30, 2024, the maturities of long-term debt for the next five years and thereafter were as follows ( in thousands ):

Thereafter 521,125

4 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 March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Basic earnings per share:

31 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Service Centers $ 306,516 $ 313,806 $ 594,952 $ 619,619

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 March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Income from operations for reportable segments $ 63,044 $ 58,999 $ 115,596 $ 119,523

9 unchanged sentences

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 ):

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.

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.

A summary of the allocation of the total purchase consideration of our four business acquisitions during the six months ended June 30, 2024 is presented as follows ( in thousands ):

Purchase Price Consideration

4 unchanged sentences

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 purchase consideration related to our acquisitions during the period consisted primarily of cash consideration.

The total cash and cash equivalents acquired for these acquisitions was $ 2.5 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.

Transaction-related costs included within selling, general, and administrative expenses in the consolidated statements of operations were not material for the three months ended June 30, 2024.

The goodwill total of approximately $ 83.3 million is attributable primarily to expected synergies and the assembled workforce of each entity and is generally not deductible for tax purposes.

$ 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.

Goodwill assigned to our SC and IPS segments was $ 63.0 million and $ 20.3 million, respectively.

The operating results of these acquisitions are included within the Company's consolidated statements of operations from the date of acquisition, which were not material for the three and six months ended June 30, 2024.

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.

Of the $ 31.1 million of acquired intangible assets, $ 1.9 million was provisionally assigned to non-compete agreements that are subject to amortization over 5 years and $ 3.6 million was assigned to trade name and will be amortized over a period of 10 years.

In addition, $ 25.6 million was assigned to customer relationships and will be amortized over a period of 8 years.

NOTE 13 - SHARE REPURCHASES

NOTE 13 - COMMON STOCK AND SHARE REPURCHASES

The following is a summary of changes in outstanding common stock for the period indicated (in thousands ):

Common stock outstanding at December 31, 2023

Common stock issued related to stock compensation expense (1)

Total number of shares purchased

Common stock outstanding at June 30, 2024

(1) The number of common stock issued represents issuance net of tax withholding.

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 from the date of the announcement.

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands, except per share data)

2024 2023 2024 2023

Total number of shares purchased 139.4 748.8 465.8 1,088.4

2 unchanged sentences

NOTE 14 - SUPPLEMENTAL CASH FLOW INFORMATION

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands)

4 unchanged sentences

Treasury shares repurchase accruals

$ — $ ( 605 )

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