DXP ENTERPRISES INC 10-K

ITEM 8. Financial Statements and Supplementary Data TABLE OF CONTENTS Page Report of Independent Registered Public Accounting Firm ( PricewaterhouseCoopers LLP ) PCAOB ID: 238 45 Consolidated Statements of Operations and Comprehensive Income 49 Consolidated Balance Sheets 50 Consolidated Statements of Cash Flows 51 Consolidated Statements of Equity 52 Notes to Consolidated Financial Statements 53 45 Table of Contents 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 sheets of DXP Enterprises, Inc. 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, 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 on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. 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. 46 Table of Contents 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 (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) 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 (iii) 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 (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue Recognized Over Time - Estimated Costs to Complete Open Contracts As described in Note 2 to the consolidated financial statements, revenue recognized under the percentage-of-completion method was $293.3 million for the year ended December 31, 2024. 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. Under this method, the Company recognizes sales and profit based upon the cost-to-cost method, in which sales and profit are recorded based upon the ratio of costs incurred to estimated total costs to complete the asset. The percentage-of-completion method of accounting requires management to estimate the project costs at completion. Revenues are estimated based upon the original contract price and change orders. Contract costs may be incurred over a period of several months, and the estimation of these costs requires judgment based upon the acquired knowledge and experience of program managers, engineers, and finance professionals. 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 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 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. 47 Table of Contents /s/ PricewaterhouseCoopers LLP Houston, Texas March 10, 2025 We have served as the Company’s auditor since 2022. 48 Table of Contents DXP ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (in thousands, except per share amounts) Twelve Months Ended December 31, 2024 2023 2022 Sales $ 1,802,040 $ 1,678,600 $ 1,480,832 Cost of sales 1,245,763 1,173,309 1,058,794 Gross profit 556,277 505,291 422,038 Selling, general and administrative expenses 410,895 366,569 324,286 Income from operations 145,382 138,722 97,752 Interest expense 63,927 53,146 29,135 Other (income) expense, net ( Note 1 8 ) ( 3,517 ) ( 1,355 ) 2,716 Income before income taxes 84,972 86,931 65,901 Provision for income taxes 14,483 18,119 17,799 Net income 70,489 68,812 48,102 Net loss attributable to noncontrolling interest — — ( 53 ) Net income attributable to DXP Enterprises, Inc. 70,489 68,812 48,155 Preferred stock dividend 90 90 90 Net income attributable to common shareholders $ 70,399 $ 68,722 $ 48,065 Net income $ 70,489 $ 68,812 $ 48,102 Foreign currency translation adjustments ( 2,370 ) 435 ( 2,393 ) Comprehensive income $ 68,119 $ 69,247 $ 45,709 Earnings per share (Note 12) : Basic $ 4.44 $ 4.07 $ 2.58 Diluted $ 4.22 $ 3.89 $ 2.47 Weighted average common shares outstanding: Basic 15,861 16,870 18,631 Diluted 16,701 17,710 19,471 The accompanying notes are an integral part of these consolidated financial statements. 49 Table of Contents DXP ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) December 31, 2024 December 31, 2023 ASSETS Current assets: Cash $ 148,320 $ 173,120 Restricted cash 91 91 Accounts receivable, net of allowance of $ 5,172 and $ 5,584 , respectively 339,365 311,171 Inventories 103,113 103,805 Costs and estimated profits in excess of billings 50,735 42,323 Prepaid expenses and other current assets 20,250 18,044 Total current assets 661,874 648,554 Property and equipment, net 81,556 61,618 Goodwill 452,343 343,991 Other intangible assets, net 85,679 63,895 Operating lease right of use assets, net 46,569 48,729 Other long-term assets 21,473 10,649 Total assets $ 1,349,494 $ 1,177,436 LIABILITIES AND EQUITY Current liabilities: Current maturities of debt $ 6,595 $ 5,500 Trade accounts payable 103,728 96,469 Accrued wages and benefits 41,650 36,238 Customer advances 13,655 12,160 Billings in excess of costs and estimated profits 12,662 9,506 Short-term operating lease liabilities 14,921 15,438 Other current liabilities 50,773 48,854 Total current liabilities 243,984 224,165 Long-term debt, net of unamortized debt issuance costs and discounts 621,684 520,697 Long-term operating lease liabilities 33,159 34,336 Other long-term liabilities 27,879 17,359 Total long-term liabilities 682,722 572,392 Total liabilities 926,706 796,557 Commitments and Contingencies ( Note 17 ) Shareholders' Equity: Series A preferred stock, $ 1.00 par value; 1,000,000 shares authorized 1 1 Series B preferred stock, $ 1.00 par value; 1,000,000 shares authorized 15 15 Common stock, $ 0.01 par value, 100,000,000 shares authorized; 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 204 345 Additional paid-in capital 219,511 216,482 Retained earnings 389,670 319,271 Accumulated other comprehensive loss ( 33,610 ) ( 31,240 ) Treasury stock, at cost 4,707,773 and 4,141,989 shares, respectively ( 153,003 ) ( 123,995 ) Total DXP Enterprises, Inc. equity 422,788 380,879 Total liabilities and equity $ 1,349,494 $ 1,177,436 The accompanying notes are an integral part of these consolidated financial statements. 50 Table of Contents DXP ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Twelve Months Ended December 31, 2024 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 70,489 $ 68,812 $ 48,102 Reconciliation of net income to net cash provided by operating activities: Depreciation 9,019 8,423 9,585 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 ( 887 ) ( 885 ) 659 Payment of contingent consideration liability in excess of acquisition-date fair value ( 108 ) ( 160 ) ( 781 ) Fair value adjustment on contingent consideration 745 1,738 2,311 Loss on debt extinguishment 494 1,201 — Restricted stock compensation expense 4,714 3,072 1,850 Deferred income taxes ( 14,990 ) ( 9,059 ) ( 7,541 ) Loss on sale of interest in VIE — — 1,193 Changes in operating assets and liabilities, net of effects of businesses acquired: Accounts receivable ( 12,552 ) 13,293 ( 93,940 ) Cost and estimated profits in excess of billings ( 8,506 ) ( 18,720 ) ( 6,429 ) Inventories 8,432 ( 2,026 ) 2,072 Prepaid expenses and other assets 7,655 9,666 ( 11,865 ) Accounts payable and accrued expenses 7,547 10,604 35,965 Billings in excess of costs and estimated profits 3,263 ( 916 ) 6,858 Other long-term liabilities ( 1,136 ) ( 3,494 ) ( 2,902 ) Net cash provided by operating activities $ 102,211 $ 106,222 $ 5,894 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 25,068 ) ( 12,263 ) ( 4,916 ) Acquisition of businesses, net of cash acquired ( 156,624 ) ( 10,384 ) ( 48,506 ) Net cash used in investing activities $ ( 181,692 ) $ ( 22,647 ) $ ( 53,422 ) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on asset-backed credit facility 6,000 7,870 827,152 Repayments on asset-backed credit facility ( 6,000 ) ( 7,870 ) ( 827,152 ) Proceeds from debt 649,500 550,000 105,000 Principal debt payments ( 550,249 ) ( 429,508 ) ( 3,567 ) Debt issuance costs ( 2,309 ) ( 12,061 ) ( 8,398 ) Shares repurchased held in treasury ( 29,007 ) ( 56,215 ) ( 47,872 ) Payment for acquisition contingent consideration liability ( 5,000 ) ( 5,673 ) ( 469 ) Preferred stock dividends paid ( 90 ) ( 90 ) ( 90 ) Payment for employee taxes withheld from stock awards ( 1,826 ) ( 527 ) ( 292 ) Principal payments on finance leases ( 4,216 ) ( 2,347 ) — Net cash provided by financing activities $ 56,803 $ 43,579 $ 44,312 Effect of foreign currency on cash ( 2,122 ) ( 60 ) 253 Net change in cash and restricted cash ( 24,800 ) 127,094 ( 2,963 ) Cash and restricted cash at beginning of year 173,211 46,117 49,080 Cash and restricted cash at end of year $ 148,411 $ 173,211 $ 46,117 Supplemental cash flow information ( Note 15 ) The accompanying notes are an integral part of these consolidated financial statements. 51 Table of Contents DXP ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (in thousands) 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 Preferred dividends paid — — — — ( 90 ) — — — ( 90 ) Compensation expense for restricted stock — — — 1,850 — — — — 1,850 Tax related items for share based awards — — — ( 292 ) — — — — ( 292 ) Issuance of shares of common stock — — 150 5,607 — — — — 5,757 Currency translation adjustment — — — — — ( 2,393 ) — — ( 2,393 ) Repurchases of shares — — — — — — ( 34,269 ) — ( 34,269 ) Net income (loss) — — — — 48,155 — — ( 53 ) 48,102 Balance at December 31, 2022 $ 1 $ 15 $ 345 $ 213,937 $ 250,549 $ ( 31,675 ) $ ( 67,780 ) $ — $ 365,392 Preferred dividends paid — — — — ( 90 ) — — — ( 90 ) Compensation expense for restricted stock — — — 3,072 — — — — 3,072 Tax related items for share based awards — — — ( 527 ) — — — — ( 527 ) Currency translation adjustment — — — — — 435 — — 435 Repurchases of shares — — — — — — ( 55,696 ) — ( 55,696 ) Excise tax on share repurchases — — — — — — ( 519 ) — ( 519 ) Net income — — — — 68,812 — — — 68,812 Balance at December 31, 2023 $ 1 $ 15 $ 345 $ 216,482 $ 319,271 $ ( 31,240 ) $ ( 123,995 ) $ — $ 380,879 Preferred dividends paid — — — — ( 90 ) — — — ( 90 ) Compensation expense for restricted stock — — — 4,714 — — — — 4,714 Tax related items for share based awards — — — ( 1,826 ) — — — — ( 1,826 ) Other — — ( 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 Balance at December 31, 2024 $ 1 $ 15 $ 204 $ 219,511 $ 389,670 $ ( 33,610 ) $ ( 153,003 ) $ — $ 422,788 The accompanying notes are an integral part of these consolidated financial statements. 52 Table of Contents DXP ENTERPRISES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - THE COMPANY DXP Enterprises, Inc. together with its subsidiaries (collectively “DXP,” “Company,” “us,” “we,” or “our”) was incorporated in Texas on July 26, 1996. The Company and its subsidiaries are engaged in the business of distributing maintenance, repair and operating (MRO) products, and service to customers serving a variety of end markets. Additionally, the Company provides integrated, custom pump skid packages, pump remanufacturing and manufactures branded private label pumps to energy and industrial customers. The Company is organized into three business segments: Service Centers (“SC”), Innovative Pumping Solutions (“IPS”), and Supply Chain Services (“SCS”). See Note 20 - Segment Reporting for discussion of the business segments. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING AND BUSINESS POLICIES Basis of Presentation The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). The accompanying consolidated financial statements include the accounts of the Company, and its wholly owned subsidiaries. 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. The Company consolidated the VIE within its financial statements. In November 2022, the Company sold its interest in the VIE and ceased the consolidation of the VIE within the Company's financial statements. The losses associated with the VIE that occurred prior to the deconsolidation are included in the consolidated statements of operations and comprehensive income. These losses were $ 0.2 million for the year ended December 31, 2022. All intercompany accounts and transactions have been eliminated in consolidation. Business Combinations We allocate the total purchase price of a business combination to the assets acquired and the liabilities assumed based on their estimated fair values at the acquisition date, with the excess purchase price recorded as goodwill. For material acquisitions, we engage third-party valuation specialists to assist us in determining the fair value of the assets acquired and liabilities assumed, including goodwill, based on recognized business valuation methodologies. If the initial accounting for the business combination is incomplete by the end of the reporting period in which the acquisition occurs, an estimate will be recorded. 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. Generally, we use an income valuation method to estimate the fair value of the assets acquired or liabilities assumed in a business combination. However, a market or cost valuation method may be utilized. We expense acquisition-related costs as incurred in connection with each business combination. Foreign Currency The financial statements of the Company’s Canadian subsidiaries are measured using local currencies as their functional currencies. Assets and liabilities are translated into U.S. dollars at current exchange rates, while income and expenses are translated at average exchange rates. Translation gains and losses are reported in other comprehensive income (loss). Gains and losses on transactions denominated in foreign currency are reported in the consolidated statements of operations and comprehensive income (loss). 53 Table of Contents Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In the opinion of management, all adjustments necessary in order to make the financial statements not misleading have been included. Actual results could differ from those estimates. Cash The Company places its cash with institutions with high credit quality. However, at certain times, such cash may be in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The Company has not historically experienced any losses when in excess of these limits. Receivables and Credit Risk Trade receivables consist primarily of uncollateralized customer obligations due under normal trade terms, which usually require payment within 30 days of the invoice date. However, these payment terms are extended in select cases and customers may not pay within stated trade terms. The Company has trade receivables from a diversified customer base located primarily in the Rocky Mountain, Northeastern, Midwestern, Southeastern and Southwestern regions of the U.S. and Canada. The Company believes no significant concentration of credit risk exists. The Company evaluates the creditworthiness of its customers' financial positions and monitors accounts on a regular basis. Provisions to the allowance for doubtful accounts are made monthly and adjustments are made periodically based upon management’s best estimate of the collectability of such accounts under the current expected credit losses model. The Company writes-off uncollectible trade accounts receivable when the accounts are determined to be uncollectible. No customer represents more than 10% of consolidated sales. Changes in this allowance for 2024 and 2023 are as follows ( in thousands ): 2024 2023 Beginning balance, January 1 $ 5,584 $ 7,610 (Recoveries) Charges to expense ( 887 ) ( 885 ) Foreign currency translation ( 42 ) 13 Write-offs 517 ( 1,154 ) Ending balance, December 31 $ 5,172 $ 5,584 Inventories Inventories are made up of equipment purchased for resale, and materials utilized in the fabrication of industrial and wastewater equipment stated at lower of cost and net realizable value, primarily determined using the weighted average cost method. The Company regularly reviews inventory and records provisions for the difference between cost and net realizable value arising from excess and obsolete items on hand based upon the aging of the inventories, market trends, and continued demand. The carrying values of inventories are as follows ( in thousands ): December 31, 2024 2023 Finished goods $ 89,780 $ 94,031 Work in process 13,333 9,774 Inventories $ 103,113 $ 103,805 Property and Equipment Property and equipment are recorded on a historical cost basis. Depreciation of property and equipment is computed using the straight-line method over their estimated useful lives. Maintenance and repairs of depreciable assets are charged against earnings as incurred. When properties are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and gains or losses are credited or charged to earnings. 54 Table of Contents The principal estimated useful lives used in determining depreciation are as follows: Buildings 20 - 39 years Building improvements 10 - 20 years Furniture, fixtures and equipment 3 - 20 years Leasehold improvements Shorter of estimated useful life or related lease term Impairment of Goodwill and Other Intangible Assets The Company tests goodwill for impairment on an annual basis on October 1st and when events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company assigns the carrying value of these intangible assets to its reporting units and applies the test for goodwill at the reporting unit level. A reporting unit is defined as an operating segment or one level below a segment (a “component”) if the component is a business and discrete information is prepared and reviewed regularly by segment management. The Company’s goodwill impairment assessment first permits evaluating qualitative factors to determine if a reporting unit's carrying value would more likely than not exceed its fair value. If the Company concludes, based on the qualitative assessment, that a reporting unit's carrying value would more likely than not exceed its fair value, the Company would perform a quantitative test for that reporting unit. Should the reporting unit's carrying amount exceed the fair value, then an impairment charge for the excess would be recognized. The impairment charge is limited to the amount of goodwill allocated to the reporting unit and goodwill will not be reduced below zero. The Company performed qualitative tests and determined no impairment of goodwill was required for the years ended December 31, 2024, 2023 and 2022. Impairment of Long-Lived Assets, Excluding Goodwill The Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. No impairment of long-lived assets was required for the years ended December 31, 2024, 2023 and 2022. Revenue Recognition The Company primarily provides purchased products distributed through its branch of local Service Centers and provides services through its local branch network and recognizes revenue at a point in time when control of the product or service performed transfers to the customer, typically upon shipment or completion from a DXP facility or directly from a supplier. Revenue is measured at the amount of consideration expected to be received in exchange for the products and services provided, net of allowances for product returns, and any taxes collected from customers that will be remitted to governmental authorities. The Service Centers segment primarily provides a wide range of maintenance, repair and operating (MRO) products, equipment and integrated services, including logistics capabilities, to industrial customers. The Supply Chain Services segment also provides a wide range of MRO products as well as manages all or part of various customers' supply chain, including warehouse and inventory management services. Revenue is recognized upon the completion of our performance obligation(s) under the sales agreement. The majority of the Service Centers and Supply Chain Services segment revenues originate from the satisfaction of a single performance obligation--the delivery of products. Revenues are recognized when an agreement is in place, the performance obligations under the contract have been satisfied, and the price or consideration to be received is fixed and allocated to the performance obligation(s) in the contract. We believe our performance obligation has been satisfied when title passes to the customer or services have been rendered under the contract. Revenues are recorded net of sales taxes. The Company reserves for potential customer returns based upon historical levels. 55 Table of Contents The Company also assembles, kits, and fabricates custom-made pump packages, remanufactures pumps, and manufactures branded private label pumps substantially within our Innovative Pumping Solutions segment. For binding agreements to assemble, fabricate and direct tangible assets to customer specifications, the Company recognizes revenues over time when the customer is able to direct the use of and obtain substantially all of the benefits of the work performed. This occurs when the products have no alternative use for us and we have a right to payment for the work completed to date plus a reasonable profit margin. Contracts include cancellation provisions that require the customer to reimburse us for costs incurred through the date of cancellation. We recognize revenue for these contracts using the percentage of completion method, an “input method” as defined by ASC 606, “Revenue from Contracts with Customers”. Under this method, we recognize sales and profit based upon the cost-to-cost method, in which sales and profit are recorded based upon the ratio of costs incurred to estimated total costs to complete the asset. The percentage-of-completion method of accounting requires the Company to estimate the project costs at completion. Revenues are estimated based upon the original contract price and change orders. Contract costs may be incurred over a period of several months, and the estimation of these costs requires judgment based upon the acquired knowledge and experience of program managers, engineers, and finance professionals. 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 $ 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 The Company classifies shipping and handling charges billed to customers as sales. Shipping and handling charges paid to others are classified as a component of cost of sales. Cost of Sales and Selling, General and Administrative Expense Cost of sales includes product and product related costs, inbound freight charges, internal transfer costs, and depreciation. Selling, general and administrative expense includes purchasing and receiving costs, inspection costs, warehousing costs, depreciation, and amortization. Income Taxes The Company utilizes the asset and liability method of accounting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and income tax bases of assets and liabilities. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to reverse. Valuation allowances are established to reduce deferred income tax assets to the amounts expected to be realized under a more likely than not criterion. Accounting for Uncertainty in Income Taxes A position taken or expected to be taken in a tax return is recognized in the financial statements when it is more likely than not (i.e. a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states. With few exceptions, the Company is no longer subject to U.S. federal, state and local tax examination by tax authorities for years prior to 2015. The Company believes that it has appropriate support for the income tax positions taken and to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter. Comprehensive Income Comprehensive income includes net income and foreign currency translation adjustments. The Company’s other comprehensive income is from translating foreign subsidiaries to the reporting currency. 56 Table of Contents NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS 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 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 We lease office space, warehouses, land, automobiles, office, and manufacturing equipment. Some of our leases include one or more renewal options to extend the lease term, which can be exercised at our sole discretion. Our lease agreements may include options to purchase the leased property. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Additionally, we do not have any material lessor or sub-leasing arrangements. The following table presents components of lease cost (in thousands) : Twelve Months Ended December 31, 2024 2023 2022 Operating lease costs $ 21,210 $ 21,575 $ 24,371 Finance lease costs: Amortization of assets 4,559 3,451 — Interest on lease liabilities 1,108 595 — Total finance lease costs 5,667 4,046 — Total operating and finance lease costs $ 26,877 $ 25,621 $ 24,371 The following table presents supplemental cash flow information related to leases (in thousands) : Twelve Months Ended December 31, 2024 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows - operating leases $ 20,886 $ 21,823 $ 20,584 Operating cash flows - finance leases 1,088 595 — Financing cash flows - finance leases $ 4,216 $ 2,347 $ — 57 Table of Contents The following table presents the consolidated balance sheet location of assets and liabilities related to operating and finance leases (in thousands) : December 31, Balance Sheet Location 2024 2023 Operating Operating lease right of use assets, net $ 46,569 $ 48,729 Finance Property and equipment, net 15,829 11,720 Total lease assets $ 62,398 $ 60,449 Current operating Short-term operating lease liabilities 14,921 15,438 Non-current operating Long-term operating lease liabilities 33,159 34,336 Current finance Other current liabilities 5,321 3,329 Non-current finance Other long-term liabilities 11,055 8,575 Total lease liabilities $ 64,456 $ 61,678 As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. As of December 31, 2024 maturities of lease liabilities are as follows (in thousands) : Finance Operating 2025 $ 6,451 $ 18,126 2026 5,891 14,362 2027 4,246 10,268 2028 1,847 6,662 2029 188 2,741 Thereafter — 4,068 Total future lease payments 18,623 56,227 Less: imputed interest 2,247 8,147 Total lease liability balance $ 16,376 $ 48,080 The following table presents cash paid for leases, assets exchanged for operating and finance leases, and weighted average remaining lease terms, and discount rates: December 31, 2024 2023 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 3.9 years 4.1 years Weighted-average remaining lease term - finance leases 3.2 years 3.5 years Weighted average discount rate - operating leases 8.1 % 6.8 % Weighted-average discount rate - finance leases 8.5 % 7.5 % 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. 58 Table of Contents NOTE 5 - FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES Authoritative guidance for financial assets and liabilities measured on a recurring basis applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis. Fair value, as defined in the authoritative guidance, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative guidance affects the fair value measurement of an investment with quoted market prices in an active market for identical instruments, which must be classified in one of the following categories: Level 1 Inputs Level 1 inputs come from quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 Inputs Level 2 inputs are other than quoted prices that are observable for an asset or liability. These inputs include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from, or corroborated by, observable market data by correlation or other means. Level 3 Inputs Level 3 inputs are unobservable inputs for the asset or liability which require the Company's own assumptions. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. Our acquisitions may include contingent consideration as part of the purchase price. The fair value of the contingent consideration is estimated as of the acquisition date based on the present value of the contingent payments to be made using a weighted probability of possible payments. The unobservable inputs used in the determination of the fair value of the contingent consideration include management's assumptions about the likelihood of payment based on the established benchmarks and discount rates based on an internal rate of return analysis. The fair value measurement includes inputs that are Level 3 inputs as discussed above, as they are not observable in the market. Should actual results increase or decrease as compared to the assumptions used in our analysis, the fair value of the contingent consideration obligations will increase or decrease, up to the contracted limit, as applicable. Changes in the fair value of the contingent consideration are measured during each reporting period and reflected in our results of operations. 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 . 59 Table of Contents 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 last three fiscal years ( in thousands ): Contingent Consideration Balance at December 31, 2021 $ 905 Acquisitions and settlements: Acquisitions 8,200 Settlements ( 1,250 ) Total remeasurement adjustments: Changes in fair value recorded in other (income) expense, net 2,311 Balance at December 31, 2022 $ 10,166 Acquisitions and settlements: Acquisitions 2,682 Settlements ( 5,833 ) Total remeasurement adjustments: Changes in fair value recorded in other (income) expense, net 1,738 Balance at December 31, 2023 (1) $ 8,753 Acquisitions and settlements: Acquisitions ( Note 16 ) 11,932 Settlements ( 5,108 ) Total remeasurement adjustments: Changes in fair value recorded in other (income) expense, net 745 Balance at December 31, 2024 (1) $ 16,322 (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 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: Fair Value at December 31, 2024 Valuation Technique Significant Unobservable Inputs $ 16,322 Discounted cash flow Annualized EBITDA and probability of achievement Sensitivity to Changes in Significant Unobservable Inputs The significant Level 3 unobservable inputs used in the fair value measurement of contingent consideration related to the acquisitions 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 %. 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. 60 Table of Contents 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 Under our customized pump production contracts, amounts are billed as work progresses in accordance with agreed-upon contractual terms, upon various measures of performance, including achievement of certain milestones, completion of specified units, or completion of a contract. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets presented as “Cost and estimated profits in excess of billings” on our Consolidated Balance Sheets. However, we sometimes receive advances or deposits from our customers before revenue is recognized, resulting in contract liabilities that are presented as “Billings in excess of costs and estimated profits” on our Consolidated Balance Sheets. Costs and estimated profits on uncompleted contracts and related amounts billed were as follows ( in thousands ): December 31, 2024 2023 2022 Costs incurred on uncompleted contracts $ 122,951 $ 92,363 $ 70,329 Estimated profits, thereon 58,373 37,379 23,274 Total costs and estimated profits on uncompleted contracts 181,324 129,742 93,603 Less: billings to date 143,251 96,925 80,426 Total $ 38,073 $ 32,817 $ 13,177 Such amounts were included in the accompanying Consolidated Balance Sheets for 2024 and 2023 under the following captions ( in thousands ): December 31, 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 ) Net contract assets $ 38,073 $ 32,817 $ 13,177 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 The carrying values of property and equipment, net are as follows ( in thousands ): December 31, 2024 2023 Land $ 1,704 $ 2,023 Buildings and leasehold improvements 32,652 29,840 Furniture, fixtures and equipment 137,058 113,945 Finance lease right of use assets 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. Capital expenditures by segment are included in Note 20 - Segment Reporting . 61 Table of Contents NOTE 8 - GOODWILL AND OTHER INTANGIBLE ASSETS The following table presents the changes in the carrying amount of goodwill and other intangible assets during the year ended December 31, 2024 ( in thousands ): Goodwill Other Intangible Assets, Net Total Balances as of December 31, 2023 $ 343,991 $ 63,895 $ 407,886 Translation adjustment ( 1,380 ) ( 10 ) ( 1,390 ) Acquisitions 109,732 41,621 151,353 Amortization — ( 19,827 ) ( 19,827 ) Balances as of December 31, 2024 $ 452,343 $ 85,679 $ 538,022 The following table presents the changes in the carrying amount of goodwill and other intangible assets during the year ended December 31, 2023 ( in thousands ): Goodwill Other Intangible Assets, Net Total Balances as of December 31, 2022 $ 333,759 $ 79,584 $ 413,343 Translation adjustment 464 15 479 Acquisitions 9,768 2,527 12,295 Amortization — ( 18,231 ) ( 18,231 ) Balances as of December 31, 2023 $ 343,991 $ 63,895 $ 407,886 The following table presents the goodwill balance by reportable segment as of December 31, 2024 and 2023 (in thousands) : December 31, 2024 2023 Service Centers $ 335,611 $ 270,865 Innovative Pumping Solutions 99,593 55,987 Supply Chain Services 17,139 17,139 Total $ 452,343 $ 343,991 Gross carrying amounts as well as accumulated amortization are partially affected by the fluctuation of foreign currency rates. Other intangible assets are amortized according to estimated economic benefits over their estimated useful lives. 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) : Amount 2025 $ 20,734 2026 17,982 2027 16,002 2028 13,851 2029 6,801 Thereafter 10,309 Total $ 85,679 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. 62 Table of Contents NOTE 9 – LONG-TERM DEBT Long-term debt consisted of the following ( in thousands ): December 31, 2024 2023 ABL Revolver $ — $ — Amended Senior Secured Term Loan B due October 13, 2030 (1) 647,876 — Senior Secured Term Loan B due October 13, 2030 (2) — 548,625 Promissory Note due November 1, 2029 1,000 — Total debt 648,876 548,625 Less: current maturities ( 6,595 ) ( 5,500 ) Total long-term debt 642,281 543,125 Unamortized discount and debt issuance costs 20,597 22,428 Long-term debt, net of unamortized discount and debt issuance costs $ 621,684 $ 520,697 (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 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. Prepayments 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. 63 Table of Contents 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 December 31, 2024 5.75 :1.00 March 31, 2025 5.75 :1.00 June 30, 2025 5.50 :1.00 September 30, 2025 5.50 :1.00 December 31, 2025 5.50 :1.00 March 31, 2026 5.25 :1.00 June 30, 2026 5.25 :1.00 September 30, 2026 5.25 :1.00 December 31, 2026 5.00 :1.00 March 31, 2027 5.00 :1.00 June 30, 2027 and thereafter 4.75 :1.00 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; and • 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; plus to the extent deducted from consolidated net income in such period: (i) income tax expense, (ii) franchise tax expense, (iii) interest expense, (iv) amortization and depreciation during such period, (v) all non-cash charges and adjustments, and (vi) non-recurring cash expenses related to the Term Loan, provided , that if the Company acquires or disposes of any property during such period (other than under certain exceptions specified in the Term Loan B Agreement, including the sale of inventory in the ordinary course of business, then EBITDA shall be calculated, after giving pro forma effect to such acquisition or disposition, as if such acquisition or disposition had occurred on the first day of such period. 64 Table of Contents 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 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. Guarantees 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. Security 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. 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, 2024, the Company's Fixed Charge Coverage Ratio was 1.70 to 1.00. 65 Table of Contents 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 ): Amount 2025 $ 6,595 2026 6,595 2027 6,595 2028 6,595 2029 7,095 Thereafter 615,401 Total $ 648,876 NOTE 10 - INCOME TAXES The components of income before income taxes are as follows ( in thousands ): Years Ended December 31, 2024 2023 2022 Domestic $ 77,309 $ 79,785 $ 59,736 Foreign 7,663 7,146 6,165 Total income before taxes $ 84,972 $ 86,931 $ 65,901 The provision for income taxes consisted of the following ( in thousands ): Years Ended December 31, 2024 2023 2022 Current - Federal $ 22,066 $ 22,514 $ 18,591 State 5,217 2,620 4,501 Foreign 2,190 2,044 2,248 Total current 29,473 27,178 25,340 Deferred - Federal ( 13,597 ) ( 7,679 ) ( 5,875 ) State ( 1,347 ) ( 1,133 ) ( 1,083 ) Foreign ( 46 ) ( 247 ) ( 583 ) Total deferred ( 14,990 ) ( 9,059 ) ( 7,541 ) Total current and deferred taxes $ 14,483 $ 18,119 $ 17,799 66 Table of Contents The difference between income taxes computed at the statutory income tax rate and the provision for income taxes is as follows ( in thousands ): Years Ended December 31, 2024 2023 2022 Income taxes computed at federal statutory rate $ 17,844 $ 18,255 $ 13,839 State income taxes, net of federal benefit 1,935 1,669 2,701 Foreign taxes 352 144 122 Nondeductible expenses 1,048 2,670 1,158 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 ) Restricted Stock ( 2,056 ) — — Uncertain tax positions 1,732 ( 33 ) 271 Other 67 9 ( 281 ) Total income tax expense $ 14,483 $ 18,119 $ 17,799 Deferred tax liabilities and assets were comprised of the following (in thousands) : December 31, 2024 2023 Deferred tax assets: Allowance for doubtful accounts $ 954 $ 879 Inventory 3,585 3,371 Texas research and development tax credit carryforward 2,232 2,239 Louisiana research and development tax credit carryforward 10 10 Foreign tax credit carryforward 64 64 Net operating loss carryforward 1,258 1,328 Capital loss carryforward 4 4 Accruals 9,814 8,190 ROU asset 304 220 Research expenses 40,650 23,822 Total deferred tax assets 58,875 40,127 Less valuation allowance ( 221 ) ( 278 ) Total deferred tax asset, net of valuation allowance 58,654 39,849 Deferred tax liabilities: Goodwill ( 24,847 ) ( 18,476 ) Intangibles ( 7,902 ) ( 8,363 ) Property and equipment ( 10,204 ) ( 7,885 ) Deferred compensation 2,304 ( 215 ) Unremitted foreign earnings ( 421 ) ( 421 ) Method changes ( 393 ) ( 342 ) Other ( 243 ) ( 643 ) Total deferred tax liability $ ( 41,706 ) $ ( 36,345 ) Net deferred tax asset $ 16,948 $ 3,504 67 Table of Contents The Company records a valuation allowance when it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. If the Company was to determine that it would be able to realize the deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the valuation allowance, which would reduce the provision for income taxes. As of December 31, 2024, the valuation allowance primarily relates to state operating loss and foreign capital loss carryforwards. The following summarizes changes in the balance of valuation allowances on deferred tax assets (in thousands) : 2024 2023 2022 Balance at January 1 $ ( 278 ) $ ( 4 ) $ ( 4 ) Changes due to state operating loss and foreign capital loss carryforwards 57 ( 274 ) — Balance at December 31 $ ( 221 ) $ ( 278 ) $ ( 4 ) Expected tax benefit on carryforwards available for use on future income tax returns, prior to valuation allowance, at December 31, 2024, are as follows (in thousands) : Domestic Foreign Expiration Net operating loss - foreign $ — $ 562 2034-2043 Net operating loss - federal (100%) 32 — 2037 Net operating loss - federal (80%) 447 — Indefinite Net operating loss - state 217 — Indefinite Capital loss carryforward - foreign — 4 Indefinite Foreign tax credits 64 — 2025 Texas research and development tax credits 2,232 — 2037-2043 Louisiana research and development tax credits $ 10 $ — 2025-2027 Changes in the balance of unrecognized tax benefits excluding interest and penalties on uncertain tax positions are as follows (in thousands) : Assets (Liabilities) 2024 2023 2022 Balance at January 1, $ ( 5,755 ) $ ( 5,918 ) $ ( 6,316 ) Decreases related to prior year tax positions 142 1,475 614 Increases related to current year tax positions ( 3,089 ) ( 1,312 ) ( 216 ) Balance at December 31, $ ( 8,702 ) $ ( 5,755 ) $ ( 5,918 ) As of December 31, 2024, the Company had recorded a total tax benefit of $ 35.6 million related to federal and state research and development tax credits. This benefit is partially offset by $ 8.5 million uncertain tax position due to the uncertainty related to the realizability of the federal research and development tax credits. 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. For the year ended December 31, 2024, the Company recorded $ 0.1 million tax expense for interest and penalties related to uncertain tax positions. The Company is subject to taxation in the U.S., various states, and foreign jurisdictions. The Company has significant operations in the U.S. and Canada and to a lesser extent in various other international jurisdictions. Tax years that remain subject to examination vary by legal entity but are generally closed in the U.S. for the tax years prior to 2015 and outside the U.S. for the tax years ended prior to 2019. There is a 4 year statute of limitations for Canadian returns based on the date tax assessment is received, not filing date. Tax assessments are typically received within weeks of filing date. 68 Table of Contents NOTE 11 - SHARE-BASED COMPENSATION 2016 Omnibus Incentive Plan On June 16, 2023, our shareholders approved an amendment to the DXP Enterprises, Inc. 2016 Omnibus Incentive Plan (the “2016 Plan”) to increase the number of shares that can be issued under the 2016 Plan from 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. 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: Number of Shares Weighted Average Grant Price Non-vested at December 31, 2023 304,437 $ 27.60 Granted 127,860 $ 52.89 Forfeited ( 9,644 ) $ 26.96 Vested ( 120,253 ) $ 28.13 Non-vested at December 31, 2024 302,400 $ 38.11 Changes in RSAs for the twelve months ended December 31, 2023 are as follows: Number of Shares Weighted Average Grant Price Non-vested at December 31, 2022 157,767 $ 28.64 Granted 215,554 $ 27.36 Forfeited — $ — Vested ( 68,884 ) $ 29.23 Non-vested at December 31, 2023 304,437 $ 27.60 Changes in RSAs for the twelve months ended December 31, 2022 are as follows: Number of Shares Weighted Average Grant Price Non-vested at December 31, 2021 112,044 $ 31.72 Granted 113,077 $ 27.48 Forfeited ( 8,785 ) $ 31.96 Vested ( 58,569 ) $ 31.79 Non-vested at December 31, 2022 157,767 $ 28.64 69 Table of Contents 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. The aggregate grant-date fair value of vested shares for the years ended December 31, 2024, December 31, 2023 and December 31, 2022 was $ 3.4 million, $ 2.0 million and $ 1.9 million, respectively. Unrecognized compensation expense under the 2016 Plan at December 31, 2024, December 31, 2023 and December 31, 2022 was $ 7.7 million, $ 5.9 million and $ 3.1 million, respectively. As of December 31, 2024, the weighted average period over which the unrecognized compensation expense is expected to be recognized is 1.5 years. NOTE 12 - EARNINGS PER SHARE DATA Basic earnings per share is computed based on weighted average shares outstanding and excludes dilutive securities. Diluted earnings per share is computed including the impacts of all potentially dilutive securities. The following table sets forth the computation of basic and diluted earnings per share for the periods indicated ( in thousands, except per share data ): December 31, 2024 2023 2022 Basic earnings per share: Weighted average shares outstanding 15,861 16,870 18,631 Net income attributable to DXP Enterprises, Inc. $ 70,489 $ 68,812 $ 48,155 Series B convertible preferred stock dividend ( 90 ) ( 90 ) ( 90 ) Net income attributable to common shareholders 70,399 68,722 48,065 Per share amount $ 4.44 $ 4.07 $ 2.58 Diluted earnings per share: Weighted average shares outstanding 15,861 16,870 18,631 Assumed conversion of convertible preferred stock 840 840 840 Total dilutive shares 16,701 17,710 19,471 Net income attributable to common shareholders $ 70,399 $ 68,722 $ 48,065 Series B convertible preferred stock dividend 90 90 90 Net income attributable to DXP Enterprises, Inc. 70,489 68,812 48,155 Per share amount $ 4.22 $ 3.89 $ 2.47 Basic earnings per share have been computed by dividing net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding during the period and excludes dilutive securities. Diluted earnings per share reflects the potential dilution that could occur if the preferred stock was converted into common stock. 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. 70 Table of Contents NOTE 13 – CAPITAL STOCK 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. Series A Preferred Stock The holders of Series A preferred stock are entitled to one-tenth of a vote per share on all matters presented to a vote of shareholders generally, voting as a class with the holders of common stock, and are not entitled to any dividends or distributions other than in the event of a liquidation of the Company, in which case the holders of the Series A preferred stock are entitled to $ 100 liquidation preference per share. Series B Convertible Preferred Stock Each share of the Series B convertible preferred stock is convertible into 56 shares of common stock and a monthly dividend per share of $ 0.50 . The holders of the Series B convertible stock are entitled to a $ 100 liquidation preference per share after payment of the distributions to the holders of the Series A preferred stock and to one-tenth of a vote per share on all matters presented to a vote of shareholders generally, voting as a class with the holders of the common stock. The activity related to outstanding common stock was as follows ( in thousands ): December 31, 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 Restricted shares ( 2 ) 147 47 Issuance of common stock related to purchase of businesses — — 267 Purchase of shares held in treasury ( 566 ) ( 1,707 ) ( 1,251 ) Balance, end of period 15,695 16,177 17,690 NOTE 14 - SHARE REPURCHASE 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: Twelve Months Ended December 31, 2024 2023 2022 (in millions, except per share data) Total number of shares purchased 0.6 1.7 1.3 Amount paid $ 28.8 $ 54.7 $ 35.2 Average price paid per share $ 50.87 $ 32.06 $ 28.17 71 Table of Contents NOTE 15 - SUPPLEMENTAL CASH FLOW INFORMATION Twelve Months Ended December 31, 2024 2023 2022 Supplemental disclosures of cash flow information: Cash paid for interest (1) $ 67,005 $ 48,954 $ 25,321 Cash paid for income taxes $ 20,433 $ 21,839 $ 26,179 Shares repurchased held in treasury $ — $ — $ 13,603 Non-cash investing and financing activities: Treasury shares excise tax accruals $ ( 225 ) $ ( 519 ) $ — 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 The Company continually evaluates potential acquisitions that either strategically fit with the Company’s existing portfolio or expand the Company’s portfolio into new and attractive markets. The Company has completed a number of acquisitions and the purchases of the acquired businesses have resulted in the recognition of goodwill and other intangible assets in the Company’s Consolidated Financial Statements. The Company makes an initial allocation of the purchase price at the date of acquisition based upon its estimate of the fair value of the acquired assets and assumed liabilities. The Company obtains the information used for the purchase price allocation during due diligence and through other sources. The Company will reflect measurement period adjustments, if any, in the period in which the adjustments are recognized. Final determination of the fair values may result in further adjustments. The fair values of acquired intangibles are determined based on estimates and assumptions that are deemed reasonable by the Company. The Company from time-to-time engages third-party valuation specialists who review the Company’s critical assumptions and calculations of the fair value of acquired intangible assets in connection with significant acquisitions. Only facts and circumstances that existed as of the acquisition date are considered for subsequent adjustment. The Company is continuing to evaluate certain pre-acquisition contingencies associated with certain of its 2024 acquisitions. The Company will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required. Each acquisition has been accounted for as a business combination under ASC 805, “Business Combinations”. 2024 Acquisitions 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. 72 Table of Contents Purchase Price Allocation and Consideration 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 3 1 1 2 7 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 Goodwill $ 28,611 $ 56,305 $ 20,694 $ 4,122 $ 109,732 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. Contingent Consideration 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. The combined fair value of the contingent consideration recognized on each acquisition date of $ 11.9 million was estimated by using a weighted probability of possible payments. That measure is based on significant Level 3 inputs not observable in the market. The significant assumption includes a discount rate of 9.8 %. Changes in the fair value measurement each period reflect the passage of time as well as the impact of adjustments, if any, to the likelihood of achieving the specified targets. The changes in the fair value of the contingent consideration are measured during each reporting period and reflected in our results of operations. The fair value measurement includes earnings forecasts which are a Level 3 measurement as discussed in Note 5 - Fair Value of Financial Assets and Liabilities . 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. 73 Table of Contents 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. 74 Table of Contents 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: Q1 2023 Q2 2023 Q3 2023 Q4 2023 Total Total Acquisitions — 2 — 1 3 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: Q1 2022 Q2 2022 Q3 2022 Q4 2022 Total Total Acquisitions 2 1 1 — 4 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 75 Table of Contents NOTE 17 - COMMITMENTS AND CONTINGENCIES From time to time, the Company is a party to various legal proceedings arising in the ordinary course of business. 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 - 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 Other, net 504 ( 413 ) 596 Other (income) expense, net $ ( 3,517 ) $ ( 1,355 ) $ 2,716 NOTE 19 - REVENUE The Company disaggregates revenue based upon our geography and our reportable segments - Service Centers, Innovative Pumping Solutions and Supply Chain Services. Each of our geographic and reportable business segments are impacted and influenced by varying factors, including the macroeconomic environment, maintenance and capital spending and commodity prices and exploration and production activity. As such, we believe this information is important in depicting the nature, timing and uncertainty of our contracts with customers. The following Geographical Information and Note 20 - Segment Reporting present our revenue disaggregated by source. Geographical Information Revenues are presented in geographic area based on location of the facility shipping products or providing services. The Company’s revenues by geographical location are as follows (in millions): Years Ended December 31, 2024 2023 2022 Revenues United States $ 1,721 $ 1,602 $ 1,402 Canada 79 75 79 Other 2 2 — Total $ 1,802 $ 1,679 $ 1,481 76 Table of Contents NOTE 20 – SEGMENT REPORTING 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, 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. 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; opportunities to grow profitability; new products, services or new customer accounts; confidence in management; and competitive landscape and intensity. 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 ): Years Ended December 31, Service Centers Innovative Pumping Solutions Supply Chain Services Total 2024 Total Revenue $ 1,222,599 $ 323,026 $ 256,415 $ 1,802,040 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 Capital expenditures $ 4,423 $ 2,586 $ 13 $ 7,022 Depreciation $ 3,142 $ 3,379 $ 32 $ 6,553 Amortization of finance leases $ 3,594 $ 508 $ 133 $ 4,235 Years Ended December 31, Service Centers Innovative Pumping Solutions Supply Chain Services Total 2023 Total Revenue $ 1,199,501 $ 218,731 $ 260,368 $ 1,678,600 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 Capital expenditures $ 6,065 $ 1,972 $ — $ 8,037 Depreciation $ 2,734 $ 3,713 $ 27 $ 6,474 Amortization of finance leases $ 3,026 $ 214 $ 45 $ 3,285 77 Table of Contents Years Ended December 31, Service Centers Innovative Pumping Solutions Supply Chain Services Total 2022 Total Revenue $ 1,041,462 $ 198,895 $ 240,475 $ 1,480,832 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 Capital expenditures $ 1,849 $ 2,368 $ 43 $ 4,260 Depreciation $ 2,998 $ 4,512 $ 144 $ 7,654 Years Ended December 31, 2024 2023 2022 Income from operations for reportable segments $ 250,473 $ 228,764 $ 176,741 Adjustments for: 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 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. The Company had identifiable assets at corporate of $ 210.8 million, $ 221.1 million, and $ 55.1 million as of December 31, 2024, 2023, and 2022, respectively. 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 The Board uses policies and procedures, to be applied by the Audit Committee of the Board, for review, approval or ratification of any transactions with related persons. Those policies and procedures will apply to any proposed transactions in which the Company is a participant, the amount involved exceeds $ 120,000 and any director, executive officer or significant shareholder or any immediate family member of such a person has a direct or material indirect interest. 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. 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 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. ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 78 Table of Contents