What changed in this filing

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Item 1. Financial Statements

2024-11-07 compared with 2024-08-08 · 87 added, 43 removed, 369 unchanged (26% of the section changed)

5 unchanged sentences

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

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

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

2024 2023 2024 2023

4 unchanged sentences

Income from operations 39,608 35,856 106,091 108,735

Other income, net ( 1,035 ) ( 242 ) ( 3,004 ) ( 712 )

Interest expense

15,716 12,684 46,644 36,068

Other expense (income), net (Note 15)

160 1,234 ( 2,844 ) 522

Income before income taxes 23,732 21,938 62,291 72,145

18 unchanged sentences

(in thousands, except share amounts) (unaudited)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Current assets:

50 unchanged sentences

(in thousands) (unaudited)

Six Months Ended June 30,

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

3 unchanged sentences

Amortization of intangibles and fixed assets

17,564 15,206

(Recovery of) provision for credit losses

58 unchanged sentences

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

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

Compensation expense for restricted stock

— — — 1,322 — — — 1,322

Tax related items for share based awards — — — ( 63 ) — — — ( 63 )

Currency translation adjustment — — — — — — 380 380

Repurchases of shares — — — — — ( 5,030 ) — ( 5,030 )

Net income — — — — 21,101 — — 21,101

Balance at September 30, 2024 $ 1 $ 15 $ 345 $ 218,062 $ 368,329 $ ( 153,003 ) $ ( 31,381 ) $ 402,368

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

14 unchanged sentences

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 — — — ( 32 ) — — — ( 32 )

Currency translation adjustment — — — — — — ( 844 ) ( 844 )

Repurchases of shares — — — — — ( 22,027 ) — ( 22,027 )

— — — — 16,172 — — 16,172

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

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

14 unchanged sentences

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

For interim financial reporting not all disclosures normally required in annual consolidated financial statements prepared in accordance with U.S.

For interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S.

Securities and Exchange Commission ("SEC") not all disclosures normally required in annual consolidated financial statements prepared in accordance with U.S.

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, 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 six months ended June 30, 2024 are not necessarily indicative of results expected for the full fiscal year.

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.

The results of operations for the nine months ended September 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.

17 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 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 ):

During the nine months ended September 30, 2024, we recorded $ 11.3 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 nine months ended September 30, 2024 ( in thousands ):

Contingent Consideration

3 unchanged sentences

Total remeasurement adjustments:

Changes in fair value recorded in other income, net

*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.

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

*Ending Balance at September 30, 2024 $ 15,751

*Amounts included in other current liabilities were $ 7.5 million and $ 5.4 million for the periods ending September 30, 2024 and December 31, 2023, respectively.

Amounts included in other long-term liabilities were $ 8.3 million and $ 3.4 million for the periods ending September 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 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:

As of September 30, 2024, the maximum amount of contingent consideration payable under these arrangements is $ 18.2 million over three years .

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

The Company believes that the estimated fair value of such instruments at September 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 ):

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Finished goods $ 95,432 $ 94,031

6 unchanged sentences

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

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Costs incurred on uncompleted contracts $ 119,971 $ 92,363

3 unchanged sentences

Net $ 37,794 $ 32,814

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

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

September 30, 2024 December 31, 2023

Costs and estimated profits in excess of billings $ 49,707 $ 42,323

2 unchanged sentences

Net $ 37,794 $ 32,814

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.

During the nine months ended September 30, 2024 and 2023, $ 5.3 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 27.4 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.

Our effective tax rate from continuing operations was a tax expense of 11.1 percent for the three months ended September 30, 2024 compared to a tax expense of 26.3 percent for the three months ended September 30, 2023.

Compared to the U.S.

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.

statutory rate for the three months ended September 30, 2024, the effective tax rate was decreased by research and development tax credits and other tax credits and partially offset by state taxes, foreign taxes, nondeductible expenses, contingent consideration payments, and uncertain tax positions recorded for research and development tax credits.

Our effective tax rate from continuing operations was a tax expense of 21.1 percent for the nine months ended September 30, 2024, compared to a tax expense of 26.8 percent for the nine months ended September 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.

statutory rate for the nine months ended September 30, 2024, the effective tax rate was decreased by research and development tax credits and other tax credits and partially offset by state taxes, foreign taxes, nondeductible expenses, contingent consideration payments, and uncertain tax positions recorded for research and development 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 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.

As of September 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 ):

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

ABL Revolver $ — $ —

10 unchanged sentences

$ 519,250 $ 520,697

(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.

(1) The fair value of the Term Loan B due October 13, 2030 was $ 547.9 million and $ 554.1 million as of September 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 10.16 % and 10.44 % as of June 30, 2024 and December 31, 2023, respectively.

The interest rate for the Senior Secured Term Loan B was 10.16 % and 10.44 % as of September 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 June 30, 2024 there was $ 545.9 million outstanding under the Senior Secured Term Loan B.

As of September 30, 2024 there was $ 544.5 million outstanding under the Senior Secured Term Loan B.

The Company was in compliance with all financial covenants as of September 30, 2024.

ABL Revolver:

4 unchanged sentences

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

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 ):

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

As of September 30, 2024, the borrowing availability under our credit facility was $ 131.6 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 8.25 % and 8.75 % as of September 30, 2024 and December 31, 2023, respectively.

As of September 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 June 30, Six Months Ended June 30,

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

2024 2023 2024 2023

32 unchanged sentences

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

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

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

2024 2023 2024 2023

9 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 June 30, Six Months Ended June 30,

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

2024 2023 2024 2023

5 unchanged sentences

Interest expense

Other income, net

15,716 12,684 46,644 36,068

Other expense (income), net

160 1,234 ( 2,844 ) 522

Income before income taxes $ 23,732 $ 21,938 $ 62,291 $ 72,145

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.

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 ):

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

Purchase Price Consideration

6 unchanged sentences

The total cash and cash equivalents acquired for these acquisitions was $ 4.5 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 June 30, 2024.

Transaction-related costs included within selling, general, and administrative expenses in the consolidated statements of operations was $ 1.2 million for the nine months ended September 30, 2024.

The goodwill total of approximately $ 104.4 million is attributable primarily to expected synergies and the assembled workforce of each entity and is generally not deductible for tax purposes.

Goodwill assigned to our SC and IPS segments was $ 63.3 million and $ 41.0 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.

6 unchanged sentences

Total number of shares purchased

Common stock outstanding at June 30, 2024

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 September 30, 2024 15,695

(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.

The Company completed the program in August 2024.

On August 28, 2024, the Company announced a new Share Repurchase Program pursuant to which we may repurchase up to $ 85.0 million worth, or 2.5 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 stock.

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

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

(in thousands, except per share data)

4 unchanged sentences

NOTE 14 - SUPPLEMENTAL CASH FLOW INFORMATION

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

2 unchanged sentences

Cash paid for income taxes 17,911 20,298

Cash paid for finance lease liability

Non-cash investing and financing activities:

Treasury shares repurchase accruals

NOTE 15 - OTHER EXPENSE AND INCOME, NET

The components of other expense (income), net were as followed:

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

(in thousands)

2024 2023 2024 2023

Interest income ( 422 ) ( 202 ) ( 3,487 ) ( 1,053 )

Change in fair value of contingent consideration 685 663 380 1,502

Other, net ( 103 ) 773 263 73

Other expense (income), net

160 1,234 ( 2,844 ) 522

NOTE 16 - SUBSEQUENT EVENT

On October 3, 2024, the Company entered into an amendment (the “Third Term Loan Amendment”) on its existing Senior Secured Term Loan B, repricing and borrowing an incremental $ 105 million that was added to the existing Senior Secured Term Loan B.

Including the new borrowings, the Company will have $ 649.5 million in Senior Secured Term Loan B borrowings.

The new Senior Secured Term Loan B borrowings mature on October 13, 2030, and are priced at Term SOFR plus an applicable margin of 3.75 percent.

On November 1, 2024, the Company completed the acquisitions of Burt Gurney & Associates and MaxVac Inc.

DXP funded the acquisitions with cash on the balance sheet.

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