What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-10 compared with 2024-03-11 · 353 added, 287 removed, 804 unchanged (44% of the section changed)

Financial Statements and Supplementary Data

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

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

Report of Independent Registered Public Accounting Firm ( PricewaterhouseCoopers LLP ) PCAOB ID:

Consolidated Statements of Operations and Comprehensive Income

7 unchanged sentences

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”).

and its subsidiaries (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of operations and comprehensive income, of equity and of cash flows for each of the three years in the period ended December 31, 2024, 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, 2024, 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, 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.

The material weaknesses referred to above are described in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A.

We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

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, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

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 audits.

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

As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded seven entities from its assessment of internal control over financial reporting as of December 31, 2024 because they were acquired by the Company in purchase business combinations during 2024.

We have also excluded these seven entities from our audit of internal control over financial reporting.

These entities, each of which is wholly-owned, comprised, in the aggregate, total assets and total sales excluded from management’s assessment and our audit of internal control over financial reporting of approximately 4% and 5%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2024.

Definition and Limitations of Internal Control over Financial Reporting

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As described in Note 2 to the consolidated financial statements, revenue recognized under the percentage-of-completion method was $293.3 million for the year ended December 31, 2024.

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.

As disclosed by management, the Company has contracts to assemble, fabricate and or deliver 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.

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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 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.

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

As previously disclosed by management, a material weakness existed during the year 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 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.

These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the estimated costs to complete open contracts.

These procedures also included, among others, for a sample of open contracts (i) testing management’s process for developing the estimated costs to complete the open contracts as of year end and (ii) evaluating the reasonableness of the significant assumption used by management related to estimated costs of materials.

Evaluating management’s assumption related to estimated costs of materials involved (i) obtaining and inspecting executed purchase orders and agreements;

(ii) considering customer specifications and associated vendor quotes;

and (iii) performing a comparison of the originally estimated and actual costs of materials incurred on similar completed contracts.

/s/ PricewaterhouseCoopers LLP

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

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of DXP Enterprises, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

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

and subsidiaries (the “Company”) as of December 31, 2021, and the related consolidated statements of operations and comprehensive income, equity, and cash flows for the year then ended, and 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, 2021, 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 consolidated financial position of the Company as of December 31, 2021, and the consolidated 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, because of the effects of the material weaknesses described below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2021, based on criteria established in established in Internal Control - Integrated Framework (2013) issued by COSO.

Basis for Opinion

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 the accompanying Management Report on Internal Control over Financial Reporting included in Item 9A.

Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting 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.

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 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 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.

A material weakness is a control 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 Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weaknesses have been identified and included in management’s assessment in Item 9A:

The Company did not design and maintain effective internal controls to ensure that aged items recorded in the un-invoiced inventory accounts payable are monitored, addressed and cleared in a timely manner.

The Company did not design and maintain effective management review controls to ensure the proper application of generally accepted accounting principles (ASC 606, Revenue from Contracts with Customers ) related to the percentage-of-completion method, an input method as defined by ASC 606, of recognizing revenue from contracts with customers.

These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2021 consolidated financial statements, and this report does not affect our report on those consolidated financial statements.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

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 matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition – Revenue Recognized Over Time

As discussed in Note 2 and Note 6 to the consolidated financial statements, the Company recognizes revenue from contracts with customers in its Innovative Pumping Solutions segment under the percentage-of-completion method, an input method as defined by ASC 606.

For these transactions, revenue is recognized over time based on cost incurred to date as a percentage of total estimated cost.

We identified revenue recognized over time as a critical audit matter based on the manual and subjective nature of the Company determining estimated costs to complete, as well as insufficient internal policies, procedures, and software.

Evaluating revenue recognized over time under the percentage-of-completion method required extensive audit effort and a high degree of auditor judgment.

The primary procedures we performed to address this critical audit matter included:

Understanding the design and effectiveness of internal controls around management’s review of the schedule of contracts and related contract progress;

Testing the calculation of revenue recognized over time through an examination of billings, cash collections, costs incurred, and other related components;

Sampling contracts with customers, including confirming contract and progress details with project managers;

Evaluating management’s expected costs to be incurred on projects for reasonableness by performing a retrospective analysis.

/s/ McConnell & Jones LLP

We served as the Company’s auditor in 2021.

Houston, Texas

April 5, 2022

DXP ENTERPRISES, INC.

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145,382 138,722 97,752

Other (income) expense, net

( 1,355 ) 2,716 ( 414 )

Interest expense 63,927 53,146 29,135

Income before income taxes

Other (income) expense, net ( Note 1 8 )

( 3,517 ) ( 1,355 ) 2,716

Provision for income tax expense

Income before income taxes

84,972 86,931 65,901

Provision for income taxes 14,483 18,119 17,799

70,489 68,812 48,102

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1,000,000 shares authorized

Series B convertible preferred stock, $ 1.00 par value;

Series B preferred stock, $ 1.00 par value;

1,000,000 shares authorized

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

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

20,402,861 issued and 15,695,088 outstanding at December 31, 2024 and 20,319,226 issued and 16,177,237 outstanding at December 31, 2023

Additional paid-in capital 219,511 216,482

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Depreciation 9,019 8,423 9,585

Amortization of intangible assets and fixed assets

21,682 18,915 17,197

Amortization of deferred financing costs

2,991 1,842 1,558

Amortization of intangibles and fixed assets 24,386 21,682 18,915

Amortization of debt issuance costs 3,646 2,991 1,842

(Recovery of) provision for credit losses

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Loss on debt extinguishment

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

Restricted stock compensation expense

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Loss on sale of interest in VIE — — 1,193

Changes in operating assets and liabilities, and other:

Accounts receivable, net

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

Accounts receivable

( 12,552 ) 13,293 ( 93,940 )

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Purchase of property and equipment ( 25,068 ) ( 12,263 ) ( 4,916 )

Proceeds from the sale of property and equipment — — 1,669

Acquisition of businesses, net of cash acquired ( 156,624 ) ( 10,384 ) ( 48,506 )

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( 5,000 ) ( 5,673 ) ( 469 )

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

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

Payment for employee taxes withheld from stock awards ( 1,826 ) ( 527 ) ( 292 )

Principal repayments on finance lease obligations

Principal payments on finance leases ( 4,216 ) ( 2,347 ) —

Net cash provided by financing activities

$ 56,803 $ 43,579 $ 44,312

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

Effect of foreign currency on cash ( 2,122 ) ( 60 ) 253

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(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

Series A preferred Stock Series B preferred Stock Common Stock Paid-in Capital Retained earnings Accum Other Comp Loss

Treasury stock Non controlling interest Total equity

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

1 unchanged sentence

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

Stock compensation expense — — 56 — — — — 56

Tax related items for share based awards — — — ( 292 ) — — — — ( 292 )

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

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

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

Repurchases of shares — — — — — — ( 55,696 ) — ( 55,696 )

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

Excise tax on share repurchases

— — — — — — ( 519 ) — ( 519 )

— — — — 68,812 — — — 68,812

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

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Tax related items for share based awards — — — ( 1,826 ) — — — — ( 1,826 )

— — ( 141 ) 141 — — — — —

Currency translation adjustment — — — — — ( 2,370 ) — — ( 2,370 )

Repurchases of shares — — — — — — ( 28,783 ) — ( 28,783 )

Excise tax on share repurchases

— — — — — — ( 225 ) — ( 225 )

Net income — — — — 70,489 — — — 70,489

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

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 Company was the primary beneficiary of a VIE in which it owned 47.5 % of the VIE's equity.

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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.

These losses were $ 0.2 million for the year ended December 31, 2022.

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

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(Recoveries) Charges to expense

( 887 ) ( 885 )

Foreign currency translation

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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 $ 311.0 million and $ 213.3 million for the years ended December 31, 2023 and December 31, 2022.

Percentage of completion revenues were $ 293.3 million, $ 311.0 million, and $ 213.3 million for the years ended December 31, 2024, 2023 and 2022, respectively.

Shipping and Handling Costs

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NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

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 .

For the Company, ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

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

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.

All 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.

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.

In November 2024, the FASB issued ASU No.

2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40).

The ASU requires the disaggregated disclosure of specific expense categories, including purchases of inventory, employee compensation, depreciation, and amortization, within relevant income statement captions.

This ASU also requires disclosure of the total amount of selling expenses along with the definition of selling expenses.

The ASU is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027.

Adoption of this ASU can either be applied prospectively to consolidated financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the consolidated financial statements.

Early adoption is also permitted.

This ASU will likely result in the required additional disclosures being included in our consolidated financial statements, once adopted.

We are currently evaluating the provisions of this ASU.

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2023-09, Improvements to Income Tax Disclosures (Topic 740).

The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid.

The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024.

Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance.

This ASU will likely result in the required additional disclosures being included in our consolidated financial statements, once adopted.

We are currently evaluating the provisions of this ASU.

NOTE 4 - LEASES

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Amortization of assets

4,559 3,451 —

Interest on lease liabilities

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Balance Sheet Location

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

Operating lease right of use assets, net

$ 46,569 $ 48,729

Property and equipment, net

15,829 11,720

Total lease assets

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$ 16,376 $ 48,080

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

The following table presents cash paid for leases, assets exchanged for operating and finance leases, and weighted average remaining lease terms, and discount rates:

Cash paid for operating leases

$ 20,886 $ 21,823

Cash paid for finance leases

$ 4,216 $ 2,347

Assets obtained in exchange for operating lease obligations, initial recognition

$ 4,551 $ 5,556

Assets obtained in exchange for finance lease obligations

$ 8,441 $ 15,171

Weighted-average remaining lease term - operating leases

Weighted-average remaining lease term - finance leases

3.2 years 3.5 years

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.

The Company incurred approximately $ 1.9 million, $ 1.8 million, and $ 1.9 million in lease expenses to entities controlled by the Company's Chief Executive Officer and family for the years ended December 31, 2024, 2023 and 2022, respectively.

NOTE 5 - FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

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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.

During the twelve months ended December 31, 2024, we recorded $ 16.3 million in other current and other long-term liabilities for contingent consideration.

See further discussion at Note 16 - 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, 2023 ( in thousands ):

Contingent Consideration

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Acquisitions and settlements:

Acquisitions 8,200

Total remeasurement adjustments:

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

Balance at December 31, 2022

Acquisitions and settlements:

Total remeasurement adjustments:

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

Balance at December 31, 2023 (1)

Acquisitions and settlements:

Acquisitions ( Note 16 )

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(1) Amounts included in other current liabilities were $ 8.0 million and $ 5.4 million for the periods ending December 31, 2024 and December 31, 2023, respectively.

Amounts included in long-term liabilities were $ 3.4 million and $ 4.7 million for the periods ending December 31, 2023 and December 31, 2022, respectively.

Amounts included in other long-term liabilities were $ 8.3 million and $ 3.4 million for the periods ending December 31, 2024 and December 31, 2023, respectively.

Quantitative Information about Level 3 Fair Value Measurements

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

Contingent consideration ( in thousands, unaudited )

Fair Value at December 31, 2024 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

$ 16,322 Discounted cash flow Annualized EBITDA and probability of achievement

Sensitivity to Changes in Significant Unobservable Inputs

As presented in the table above, the significant 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 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 calculation was 9.8 %.

Significant increases (decreases) in these unobservable inputs in isolation would result in a significantly (lower) higher fair value measurement.

The maximum amount of contingent consideration payable under these arrangements is $ 10.3 million.

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, 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.

A decrease in discount rates would increase the contingent consideration liability, whereas an increase or decrease in EBITDA forecasts would increase or decrease the contingent liability.

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

As of December 31, 2024, the maximum amount of contingent consideration payable under these arrangements is $ 18.7 million over three years .

Other financial instruments not measured at fair value on the Company's consolidated balance sheets at December 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 December 31, 2024 and December 31, 2023 approximates their carrying value as reported on the consolidated balance sheets due to the relative short maturity of these instruments.

See Note 9 - 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 6 – CONTRACT ASSETS AND LIABILITIES

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

2024 2023 2022

Costs incurred on uncompleted contracts $ 122,951 $ 92,363 $ 70,329

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Such amounts were included in the accompanying Consolidated Balance Sheets for 2024 and 2023 under the following captions ( in thousands ):

2024 2023 2022

Costs and estimated profits in excess of billings $ 50,735 $ 42,323 $ 23,588

Billings in excess of costs and estimated profits ( 12,662 ) ( 9,506 ) ( 10,411 )

Translation Adjustment ( 3 ) 5

Net contract assets

$ 38,073 $ 32,817 $ 13,177

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.

During the twelve months ended December 31, 2024, 2023, and 2022, $ 7.4 million, $ 10.4 million, and $ 3.6 million of the balances that were previously classified as contract liabilities at the beginning of the period were recognized into revenues, respectively.

NOTE 7 - PROPERTY AND EQUIPMENT, NET

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Finance lease right of use assets

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

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

23,612 15,171

Less – Accumulated depreciation and amortization

( 113,470 ) ( 99,361 )

Property and equipment, net

$ 81,556 $ 61,618

Depreciation expense was $ 9.0 million, $ 8.4 million, and $ 9.6 million for the years ended December 31, 2024, 2023, and 2022, respectively.

22 unchanged sentences

Other intangible assets are amortized according to estimated economic benefits over their estimated useful lives.

Amortization expense is recognized according to estimated economic benefits and was $ 18.2 million, $ 18.9 million, and $ 17.2 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Amortization expense was $ 19.8 million, $ 18.2 million, and $ 18.9 million for the years ended December 31, 2024, 2023, and 2022, respectively.

The estimated future annual amortization of intangible assets for each of the next five years and thereafter are as follows (in thousands) :

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Total $ 85,679

The weighted average remaining estimated life for customer relationships and non-compete agreements are 5.28 and 2.96 years, respectively.

The weighted average remaining estimated life for customer relationships, trade names, and non-compete agreements are 5.8 , 9.4 , and 3.3 years, respectively.

NOTE 9 – LONG-TERM DEBT

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ABL Revolver $ — $ —

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

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

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

Promissory Note due November 1, 2029

648,876 548,625

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$ 621,684 $ 520,697

(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

(1) The fair value of the Amended Term Loan B due October 13, 2030 using level 2 input values was $ 657.6 million as of December 31, 2024.

(2) The fair value of the Term Loan B due October 13, 2030 using level 2 input values was $ 554.1 million as of December 31, 2023.

Senior Secured Term Loan B:

On October 3, 2024, 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 $ 105.0 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").

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.

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:

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 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 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 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, 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:

The Term Loan Amendment refinanced the existing Senior Term Loan B and replaced it with an Amended Senior Secured Term Loan B with total borrowings of $ 649.5 million.

The Amended 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.

As of December 31, 2024 there was $ 647.9 million outstanding under the Amended Senior Secured Term Loan B.

Interest rate

Quarterly interest payments accrue on outstanding borrowings under the Amended Senior Secured Term Loan B at a rate equal to Term SOFR (with a floor of 1.00 %) plus 3.75 %, or base rate plus 2.75 %.

The Amended 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.

The interest rate for the Amended Senior Secured Term Loan B was 8.32 % as of December 31, 2024.

The interest rate for the Senior Secured Term Loan B was 10.44 % as of December 31, 2023

Facility Size Increases

The Amended Senior Secured Term Loan B allows for incremental increases in facility size up to an aggregate of $ 100 million.

We are required to repay the Amended Senior Secured Term Loan B with the proceeds from certain asset sales, certain debt issuances, and certain insurance proceeds.

In addition, on an annual basis, we are required to repay an amount equal to 50 % of excess cash flow, as defined in the Amended Senior Secured Term Loan B, reducing to 25 % if our Total Leverage Ratio is less than or equal to 3.00 to 1.00.

No payment of excess cash flow is required if the Total Leverage Ratio is less than or equal to 2.50 to 1.00.

In connection with the Term Loan Amendment the Company expensed third-party fees of $ 1.1 million and recognized a $ 0.5 million loss on debt extinguishment, which were included in Interest expense during 2024.

Deferred financing costs associated with the Term Loan Amendment were $ 2.3 million which were amortized to interest expense using the interest method during 2024.

Restrictive Covenants

The Company’s primary financial covenant under the Term Loan B is a 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, 2024, is either equal to or less than as indicated in the table below:

Fiscal Quarter Secured Leverage Ratio

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As of December 31, 2024, the Company’s Secured Leverage Ratio was 2.43 to 1.00.

The Term Loan contains restrictive covenants (in each case, subject to exclusions) that limit, among other things, the ability of the Company and its restricted subsidiaries to:

• make investments, including acquisitions;

• prepay certain indebtedness;

• grant liens;

• incur additional indebtedness;

• sell assets;

• make fundamental changes to our business;

• enter into transactions with affiliates;

• pay dividends.

The Term Loan also contains other customary restrictive covenants.

The covenants are subject to various baskets and materiality thresholds, with certain of the baskets permitted by the restrictions on the repayment of subordinated indebtedness, restricted payments and investments being available only when the Senior Secured Leverage Ratio of the Company is below certain levels.

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;

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(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 December 31, 2023.

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 matures on July 19, 2027.

Interest accrues on outstanding borrowings at a rate equal to Secured Overnight Financing Rate (“SOFR”) or Canadian Dollar Offered Rate (“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 payable on the unused portion of the facility range from 0.25 % to 0.375 % per annum.

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

Each of our current and future wholly owned material U.S.

subsidiaries and DXP Enterprises, Inc.

guarantees the obligations of our borrower under the ABL Revolver.

Additionally, each of our Canadian subsidiaries guarantees the obligations of our Canadian borrower subsidiaries under the ABL Revolver.

Obligations under the U.S.

Borrowing Base are primarily secured, subject to certain exceptions, by a first-priority secure interest in the accounts receivable, inventory and related assets of our wholly owned, material U.S.

subsidiaries.

The security interest in accounts receivable, inventory, and related assets of the U.S.

borrower subsidiaries ranks prior to the security interest in this collateral which secures the Term Loan B.

The obligations under the Canadian Borrowing Base are primarily secured, subject to certain exceptions, by a first-priority secure interest in the accounts receivable, inventory and related assets of our wholly owned, material Canadian subsidiaries and our wholly owned material U.S.

subsidiaries.

Interest rate

The interest rate for the ABL Revolver was 7.75 % and 8.75 % as of December 31, 2024 and December 31, 2023, respectively.

Facility Size Increases

The ABL Credit Agreement allows for incremental increases in facility size up to an aggregate of $ 50 million.

Excess Availability

As of December 31, 2024, the borrowing availability under our credit facility was $ 125.6 million compared to $ 132.1 million at December 31, 2023, primarily as a result of outstanding letters of credit.

Financial Covenant

The Company's principal financial covenant under the ABL Credit Agreement include a 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 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 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.

As of December 31, 2024, the Company's Fixed Charge Coverage Ratio was 1.70 to 1.00.

Maturities of Debt:

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

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Nondeductible expenses 1,048 2,670 1,158

Enacted rate changes ( 58 ) 240 318

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

Return to Provision Adjustment

( 1,105 ) — —

Blended state rate change

1,122 ( 58 ) 240

General business credit

( 6,399 ) ( 4,811 ) ( 250 )

Valuation allowance ( 57 ) 274 ( 1 )

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

Restricted Stock

( 2,056 ) — —

Uncertain tax positions 1,732 ( 33 ) 271

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$ ( 41,706 ) $ ( 36,345 )

Net deferred tax asset (liability)

Net deferred tax asset

$ 16,948 $ 3,504

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Changes due to state operating loss and foreign capital loss carryforwards

( 274 ) — 12,809

Balance at December 31 $ ( 221 ) $ ( 278 ) $ ( 4 )

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Net operating loss - federal (100%)

Net operating loss - federal (80%)

447 — Indefinite

Net operating loss - state

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Balance at January 1, $ ( 5,755 ) $ ( 5,918 ) $ ( 6,316 )

Increases related to prior year tax positions — — ( 687 )

Decreases related to prior year tax positions 142 1,475 614

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The Company is also recording a $ 0.2 million uncertain tax position related to non-deductible auto expense compensation.

The total amount of these unrecognized tax benefits, if recognized, would impact the effective tax rate.

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 the Company's policy.

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NOTE 11 - SHARE-BASED COMPENSATION

Restricted Stock

We issued equity-based awards from the 2016 Omnibus Plan.

2016 Omnibus Incentive Plan

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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.

The shares of restricted stock awards granted to employees that are outstanding as of December 31, 2023 vest in accordance with one of the following vesting schedules:

100 % one year after the grant date;

50 % each year for two years after the grant;

33.3 % each year for three years after the grant date;

20 % each year for five years after the grant date;

or 10 % each year for ten years after the date of grant.

The shares of restricted stock awards granted to non-employee directors of the Company vest one year after the grant date.

The fair value of restricted stock awards is measured based upon the closing prices of the Company's common stock on the grant dates and is recognized as compensation expense over the vesting period of the awards.

Once restricted stock vests, new shares of the Company’s common stock are issued.

At December 31, 2023, 489,178 shares were available for future grant.

Changes in restricted stock awards for the twelve months ended December 31, 2023 are as follows:

Restricted Stock Awards

The Company grants restricted stock awards (“RSAs”) to employees and non-employee directors.

RSAs qualify as participating securities as each award contains non-forfeitable rights to dividends.

RSAs are considered outstanding at the date of grant.

Refer to Note.

12 Earnings Per Share for further detail.

RSAs are subject to vesting periods between one to ten years .

Compensation expense for RSAs is calculated based on the closing price of the Company’s common stock at the date of grant and recognized over the requisite vesting period on a straight-line basis.

Unvested RSAs may be forfeited if employees or non-employee directors cease employment or services during the requisite vesting period.

Forfeitures reduce expense at the time employment or service cease at the original grant date value.

The Company issues new shares of common stock, if available, to settle vested RSAs.

At December 31, 2024, 370,962 shares were available for grant.

Changes in RSAs for the twelve months ended December 31, 2024 are as follows:

Shares Weighted Average

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Non-vested at December 31, 2024 302,400 $ 38.11

Changes in restricted stock awards for the twelve months ended December 31, 2022 are as follows:

Changes in RSAs for the twelve months ended December 31, 2023 are as follows:

Shares Weighted Average

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Non-vested at December 31, 2023 304,437 $ 27.60

Changes in restricted stock awards for the twelve months ended December 31, 2021 are as follows:

Changes in RSAs for the twelve months ended December 31, 2022 are as follows:

Shares Weighted Average

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Non-vested at December 31, 2022 157,767 $ 28.64

Compensation expense, associated with restricted stock awards, recognized in the years ended December 31, 2023, December 31, 2022 and December 31, 2021 was $ 3.1 million, $ 1.9 million, and $ 1.8 million, respectively.

Compensation expense, associated with RSAs, recognized in the years ended December 31, 2024, December 31, 2023 and December 31, 2022 was $ 4.7 million, $ 3.1 million and $ 1.9 million, respectively.

Related income tax benefits recognized in earnings in the years ended December 31, 2024, December 31, 2023 and December 31, 2022 were approximately $ 0.8 million, $ 0.8 million and $ 0.5 million, respectively.

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Restricted stock is considered a participating security and is included in the computation of basic earnings per share as if vested.

For the year ended December 31, 2024, 2023, and 2022, the weighted average of the unvested RSAs were 302.8 thousand, 270.2 thousand, and 144.3 thousand shares respectively.

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

NOTE 13 – CAPITAL STOCK

The Company has Series A and Series B preferred stock of 1,222 shares and 15,000 shares outstanding as of December 31, 2023, 2022 and 2021, respectively.

The Company has Series A and Series B preferred stock of 1,222 shares and 15,000 shares issued and outstanding as of December 31, 2024, 2023 and 2022, respectively.

The preferred stock did not have any activity during 2024, 2023 and 2022.

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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 ( in thousands ):

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

2024 2023 2022

Common Stock:

Balance, beginning of period 16,177 17,690 18,580

Issuance of shares for compensation net of withholding 86 47 47

Issuance of common stock related to equity distribution agreements — — —

Restricted shares

Issuance of common stock related to purchase of businesses — — 267

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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.

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.

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:

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$ 20,433 $ 21,839 $ 26,179

Cash paid for finance lease liability

Shares repurchased held in treasury

$ — $ — $ 13,603

Non-cash investing and financing activities:

Shares issued for acquisition

Treasury shares excise tax accruals

$ ( 225 ) $ ( 519 ) $ —

Assets obtained in exchange for finance lease obligations

Shares issued for acquisition

$ — $ — $ 5,757

(1) FY 2024 includes $ 9.3 million of interest associated with 2023 paid in 2024.

NOTE 16 - BUSINESS ACQUISITIONS

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2024 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 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 common stock valued at approximately $ 0.9 million and contingent consideration of $ 1.0 million.

Goodwill for the transaction totaled approximately $ 2.5 million.

On May 2, 2022, the Company completed the acquisition of Cisco Air Systems, Inc.

Cisco is a leading distributor of air compressors and related products and services focused on serving the food and beverage, transportation and general industrial markets in the Northern California and Nevada territories.

Cisco is included within our SC business segment.

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.

On March 1, 2022, the Company completed the acquisition of Drydon Equipment, Inc.

("Drydon"), a distributor and manufacturers’ representative of pumps, valves, controls and process equipment focused on serving the water and wastewater industry in the Midwest.

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.

On March 1, 2022, the Company completed the acquisition of certain assets of Burlingame Engineers, Inc.

("Burlingame"), a provider of water and wastewater equipment in the industrial and municipal sectors.

Burlingame is included within our SC business segment.

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 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.

During the first quarter of 2024, the Company acquired three businesses for a total of $ 46.8 million.

We acquired these three businesses to expand our water & wastewater end-market, enhance our aftermarket and service capabilities, as well as expand into new geographic territories.

During the second quarter of 2024, the Company acquired a pump and rotating equipment distribution company for $ 81.5 million.

We acquired this business as part of our growth strategy and to maintain our leading position as the largest distributor of rotating equipment in North America.

During the third quarter of 2024, the Company acquired a rotating equipment distribution company for $ 36.8 million.

We acquired this business to expand our water & wastewater end-market.

During the fourth quarter of 2024, the Company acquired two businesses for a total of $ 9.8 million.

We acquired these two businesses to expand our water & wastewater end-market and our product categories.

The results for the seven businesses acquired during the year have been included in our Consolidated Financial Statements beginning on the respective dates of acquisition.

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:

Amount Recognized as of Acquisition Date

Accounts receivable 2,335

Inventory 355

Other current assets 178

Non-compete agreements 628

Customer relationships 1,899

Property and equipment 41

Operating lease ROU asset 256

Other assets 7

Assets acquired 6,052

Short-term operating lease liability ( 106 )

Current liabilities assumed ( 1,442 )

Long-term operating lease liability ( 150 )

Deferred tax liability ( 679 )

Long-term liabilities assumed ( 24 )

In aggregate, the acquisition-date fair value of the consideration transferred for the seven businesses acquired in 2024 totaled $ 174.9 million.

The seven acquisitions contributed $ 91.3 million in Sales and $ 19.1 million in Net income attributable to common shareholders for the year ended December 31, 2024.

The following table summarizes the total consideration, the estimated fair values of the assets acquired and liabilities assumed at the acquisition date for the 2024 acquisitions:

Q1 2024 Q2 2024 Q3 2024 Q4 2024 Total

Total Acquisitions

Cash payments

$ 40,661 $ 81,538 $ 31,564 $ 8,201 $ 161,964

Promissory Note due 11/1/ 2029

— — — 1,000 1,000

Contingent consideration

6,132 — 5,197 626 11,955

Total purchase price consideration

46,793 81,538 36,761 9,827 174,919

Tangible assets acquired

18,632 4,485 9,026 4,630 36,773

Intangible assets acquired

8,155 23,400 8,246 1,820 41,621

Total assets acquired

26,787 27,885 17,272 6,450 78,394

Total liabilities assumed ( 8,605 ) ( 2,652 ) ( 1,205 ) ( 745 ) ( 13,207 )

Net assets acquired 18,182 25,233 16,067 5,705 65,187

Total Consideration 13,419

Goodwill $ 28,611 $ 56,305 $ 20,694 $ 4,122 $ 109,732

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.

The total cash and cash equivalents acquired for these seven acquisitions was $ 5.5 million.

Transaction-related costs included within selling, general, and administrative expenses in the consolidated statements of operations was $ 1.6 million for the twelve months ended December 31, 2024.

The goodwill total of approximately $ 109.7 million is attributable primarily to expected synergies and the assembled workforce of each entity of which $ 22.6 million is deductible for tax purposes and $ 87.1 million is not deductible for tax purposes.

Goodwill assigned to our SC and IPS segments as a result of these transactions was $ 66.2 million and $ 43.5 million, respectively.

Of the $ 41.6 million of acquired intangible assets, $ 2.3 million was provisionally assigned to non-compete agreements that are subject to amortization over 5 years and $ 3.7 million was assigned to trade names and will be amortized over a period of 10 years.

In addition, $ 35.6 million was assigned to customer relationships and will be amortized over a period of 8 years.

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 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

Contingent Consideration

Total consideration $ 13.4

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

Goodwill related to asset acquisitions is currently deductible for income tax purposes.

Goodwill related to stock acquisitions is capitalized to the stock basis of the acquisition for income tax purposes and is deductible upon disposition of the stock.

Contingent Consideration

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 acquisitions included contingent consideration arrangements 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 $ 14.2 million.

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The fair value of the contingent consideration is reviewed quarterly over the earn-out period to compare actual earnings before interest, taxes, depreciation and amortization (“EBITDA”) achieved to the estimated EBITDA used in our forecasts.

Pro Forma Results of Operations (unaudited)

The following unaudited supplemental pro forma results of operations for the Company which incorporate the acquisitions completed in 2024, 2023 and 2022, have been provided for illustrative purposes only and may not be indicative of the actual results that would have been achieved by the combined companies for the periods presented or that may be achieved by the combined companies in the future (in thousands).

Years Ended December 31,

( in thousands )

2024 2023 2022

Sales $ 1,856,860 $ 1,794,749 $ 1,513,743

Net income attributable to common shareholders $ 84,327 $ 82,738 $ 54,527

The pro forma combined results of operations for the years ended December 31, 2024, 2023, and 2022 were prepared by adjusting the historical results of the Company to include the historical results of the businesses acquired in each year as if the business combinations that occurred during each year had occurred as of the beginning of the comparable prior annual reporting period.

2023 Acquisitions

During the second quarter of 2023, the Company acquired two businesses for a total of $ 11.7 million.

We acquired these two businesses to expand our water & wastewater end-market by expanding into new geographic territories, enhance our product capabilities, and attract and retain talent.

During the fourth quarter of 2023, the Company acquired a leading municipal and industrial pump sales, service, and repair business for $ 1.7 million.

We acquired this company to enhance our end-markets as well as expand into additional geographic territories.

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

The three acquisitions contributed $ 7.6 million in Sales and $ 0.8 million in Net income attributable to common shareholders for the year ended December 31, 2023.

The following table summarize the total consideration, the estimated fair values of the assets acquired and liabilities assumed at the acquisition date for the 2023 acquisitions:

Total Acquisitions

Cash payments

$ — $ 9,235 $ — $ 1,502 $ 10,737

Contingent consideration

— 2,498 — 184 2,682

Total purchase price consideration

— 11,733 — 1,686 13,419

Tangible assets acquired

— 3,379 — 146 3,525

Intangible assets acquired

— 2,142 — 385 2,527

Total assets acquired

— 5,521 — 531 6,052

Total liabilities assumed — ( 2,260 ) — ( 141 ) ( 2,401 )

Net assets acquired — 3,261 — 390 3,651

Goodwill $ — $ 8,472 $ — $ 1,296 $ 9,768

2022 Acquisitions

During the first quarter of 2022 the Company acquired two businesses for $ 9.0 million.

We acquired these two businesses to diversify our end-markets and expand into new geographic territories.

During the second quarter of 2022 the Company acquired a leading distributor of air compressors and related products and services for $ 52.3 million.

We acquired this business to diversify our end-markets, enhance our product and service offerings, and attract and retain talent.

During the third quarter of 2022, the Company acquired a leading distributor and manufacturers’ representative of pumps, valves, controls, and process equipment for $ 6.5 million.

We acquired this company to expand our water and wastewater end-market, expand our geographic territories, expand our product offerings, and attract and retain talent.

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

The four acquisitions contributed $ 41.5 million in Sales and $ 8.4 million in Net income attributable to common shareholders for the year ended December 31, 2022.

The following table summarize the total consideration, the estimated fair values of the assets acquired and liabilities assumed at the acquisition date for the 2022 acquisitions:

Total Acquisitions

Cash payments

$ 5,832 $ 43,483 $ 4,615 $ — $ 53,930

Common stock consideration

527 4,365 865 — 5,757

Contingent consideration

2,689 4,484 1,027 — 8,200

Total purchase price consideration

9,048 52,332 6,507 — 67,887

Tangible assets acquired

3,274 16,046 3,642 — 22,962

Intangible assets acquired

1,193 17,677 560 — 19,430

Total assets acquired

4,467 33,723 4,202 — 42,392

Total liabilities assumed ( 1,290 ) ( 11,886 ) ( 167 ) — ( 13,343 )

Net assets acquired 3,177 21,837 4,035 — 29,049

Goodwill $ 5,871 $ 30,495 $ 2,472 $ — $ 38,838

NOTE 17 - COMMITMENTS AND CONTINGENCIES

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While the Company is unable to predict the outcome or estimate the financial impact of these disputes, it believes that the ultimate resolution will not have, either individually or in the aggregate, a material adverse effect on its consolidated financial position, cash flows, or results of operations.

NOTE 18 - EMPLOYEE BENEFIT PLANS

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.

NOTE 18 - OTHER INCOME AND EXPENSE, NET

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

Years Ended December 31,

( in thousands )

2024 2023 2022

Interest income

$ ( 4,766 ) $ ( 2,680 ) $ ( 191 )

Change in fair value of contingent consideration

745 1,738 2,311

504 ( 413 ) 596

Other (income) expense, net

$ ( 3,517 ) $ ( 1,355 ) $ 2,716

NOTE 19 - REVENUE

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NOTE 20 – SEGMENT REPORTING

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

We have three reportable and operating 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 Innovative Pumping Solutions segment fabricates and assembles custom-made pump packages, re-manufactures pumps, manufactures branded private label pumps, and provides products and process lines for the water and wastewater treatment industries.

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 (“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;

No customer accounts for 10% or more of our revenues.

Sales are shown net of intersegment eliminations.

Segment information is prepared on the same basis that our Chief Executive Officer, who is our chief operating decision maker (“CODM”), manages the segments, evaluates financial results, and makes key operating decisions.

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

The Company's CODM directs the allocation of resources to these segments based upon historical and current revenue, direct operating expenses, operating income, and capital expenditures of each respective segment.

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

the segments' historical or future expected returns on capital;

outlook within a specific market;

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and competitive landscape and intensity.

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.

Sales are shown net of intersegment eliminations.

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 ( in thousands ):

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Total Revenue $ 1,222,599 $ 323,026 $ 256,415 $ 1,802,040

Operating income for reportable segments, excluding adjustments 163,877 44,260 21,524 229,661

Operating income for reportable segments

$ 174,995 $ 53,736 $ 21,742 $ 250,473

Identifiable assets at year end $ 764,533 $ 311,429 $ 62,760 $ 1,138,722

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Depreciation $ 3,142 $ 3,379 $ 32 $ 6,553

Amortization 12,266 5,965 — 18,231

Amortization of finance leases

$ 3,594 $ 508 $ 133 $ 4,235

Years Ended December 31, Service Centers Innovative Pumping Solutions Supply Chain Services Total

Total Revenue $ 1,199,501 $ 218,731 $ 260,368 $ 1,678,600

Operating income for reportable segments, excluding adjustments 127,174 30,037 19,530 176,741

Operating income for reportable segments

$ 172,095 $ 35,147 $ 21,522 $ 228,764

Identifiable assets at year end $ 660,209 $ 233,552 $ 62,610 $ 956,371

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Depreciation $ 2,734 $ 3,713 $ 27 $ 6,474

Amortization 12,294 6,621 — 18,915

Amortization of finance leases

$ 3,026 $ 214 $ 45 $ 3,285

Years Ended December 31, Service Centers Innovative Pumping Solutions Supply Chain Services Total

Total Revenue $ 1,041,462 $ 198,895 $ 240,475 $ 1,480,832

Operating income for reportable segments, excluding adjustments 98,931 12,070 11,963 122,964

Operating income for reportable segments

$ 132,421 $ 24,773 $ 19,547 $ 176,741

Identifiable assets at year end $ 668,029 $ 223,369 $ 90,771 $ 982,169

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Depreciation $ 2,998 $ 4,512 $ 144 $ 7,654

Amortization 11,107 6,090 — 17,197

Years Ended December 31,

2024 2023 2022

Operating income for reportable segments, excluding adjustments $ 229,661 $ 176,741 $ 122,964

Income from operations for reportable segments

$ 250,473 $ 228,764 $ 176,741

Adjustments for:

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

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

Total operating income $ 138,722 $ 97,752 $ 39,857

Amortization of intangible assets (1)

19,827 18,231 18,915

Corporate expenses

85,264 71,811 60,074

Income from operations

$ 145,382 $ 138,722 $ 97,752

Interest expense 63,927 53,146 29,135

Other expenses (income), net ( 1,355 ) 2,716 ( 414 )

Other expense (income), net

( 3,517 ) ( 1,355 ) 2,716

Income before income taxes $ 84,972 $ 86,931 $ 65,901

(1) Amortization of intangible assets is recorded at the corporate level.

Corporate expenses includes selling, general, and administrative expenses, amortization of finance leases, and other expenses that are not directly attributable to a reportable segment.

The Company had capital expenditures at corporate of $ 18.0 million, $ 4.2 million, and $ 0.7 million for the years ended December 31, 2024, 2023, and 2022, respectively.

1 unchanged sentence

Corporate depreciation was $ 2.5 million, $ 1.9 million, and $ 1.9 million for the years ended December 31, 2024, 2023, and 2022, respectively.

Amortization of finance leases for Corporate was $ 0.3 million and $ 0.2 million for the years ended December 31, 2024 and December 31, 2023.

NOTE 21 – RELATED PARTIES DISCLOSURES

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

The Company incurred approximately $ 1.9 million, $ 1.8 million, and $ 1.9 million in lease expenses to entities controlled by the Company’s Chief Executive Officer and family for the years ended December 31, 2024, 2023 and 2022, respectively.

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.

On February 1, 2025 the Company completed the acquisition of a leading distributor of pumps, process equipment, and related service and repairs.

We acquired this company in order to expand our end-markets and expand our geographic territories.

The acquisition was not material to our consolidated financial statements.

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