DXP ENTERPRISES INC 10-Q

ITEM 1: FINANCIAL STATEMENTS DXP ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (in thousands, except per share amounts) (unaudited) Three Months Ended March 31, 2025 2024 Sales $ 476,569 $ 412,635 Cost of sales 326,304 288,753 Gross profit 150,265 123,882 Selling, general and administrative expenses 109,750 94,751 Income from operations 40,515 29,131 Interest expense 14,660 15,544 Other income, net (Note 15) ( 1,318 ) ( 1,968 ) Income before income taxes 27,173 15,555 Provision for income taxes 6,584 4,223 Net income 20,589 11,332 Preferred stock dividend 23 23 Net income attributable to common shareholders 20,566 11,309 Net income $ 20,589 $ 11,332 Foreign currency translation adjustments 86 ( 614 ) Comprehensive income $ 20,675 $ 10,718 Earnings per share (Note 9) : Basic $ 1.31 $ 0.70 Diluted $ 1.25 $ 0.67 Weighted average common shares outstanding: Basic 15,698 16,128 Diluted 16,538 16,968 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 DXP ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) (unaudited) March 31, 2025 December 31, 2024 ASSETS Current assets: Cash $ 114,283 $ 148,320 Restricted cash — 91 Accounts receivable, net of allowance of $ 3,537 and $ 5,172 , respectively 357,764 339,365 Inventories 109,876 103,113 Costs and estimated profits in excess of billings 47,844 50,735 Prepaid expenses and other current assets 31,989 20,250 Total current assets 661,756 661,874 Property and equipment, net 97,658 81,556 Goodwill 459,963 452,343 Other intangible assets, net 83,608 85,679 Operating lease right of use assets, net 59,597 46,569 Other long-term assets 19,930 21,473 Total assets $ 1,382,512 $ 1,349,494 LIABILITIES AND EQUITY Current liabilities: Current maturities of debt $ 6,595 $ 6,595 Trade accounts payable 114,301 103,728 Accrued wages and benefits 39,334 41,650 Customer advances 13,477 13,655 Billings in excess of costs and estimated profits 19,779 12,662 Short-term operating lease liabilities 16,608 14,921 Other current liabilities 35,323 50,773 Total current liabilities 245,417 243,984 Long-term debt, net of unamortized debt issuance costs and discounts 620,901 621,684 Long-term operating lease liabilities 44,583 33,159 Other long-term liabilities 26,952 27,879 Total long-term liabilities 692,436 682,722 Total liabilities 937,853 926,706 Commitments and Contingencies ( Note 10 ) 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; 20,402,063 issued and 15,694,290 outstanding at March 31, 2025 and 20,402,861 issued and 15,695,088 outstanding at December 31, 2024 204 204 Additional paid-in capital 220,702 219,511 Retained earnings 410,236 389,670 Accumulated other comprehensive loss ( 33,524 ) ( 33,610 ) Treasury stock, at cost 4,707,773 and 4,707,773 shares, respectively ( 152,975 ) ( 153,003 ) Total DXP Enterprises, Inc. equity 444,659 422,788 Total liabilities and equity $ 1,382,512 $ 1,349,494 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 DXP ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Three Months Ended March 31, 2025 2024 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 20,589 $ 11,332 Reconciliation of net income to net cash provided by operating activities: Depreciation 2,316 2,208 Amortization of intangibles and fixed assets 6,818 5,330 Amortization of debt issuance costs 965 895 Gain on sale of property and equipment ( 325 ) — Recovery of credit losses ( 1,322 ) ( 1,200 ) Payment of contingent consideration liability in excess of acquisition-date fair value — ( 17 ) Fair value adjustment on contingent consideration 183 ( 194 ) Restricted stock compensation expense 1,317 864 Deferred income taxes 3,943 ( 3,056 ) Other non-cash items ( 6,100 ) ( 1,246 ) Changes in operating assets and liabilities, net of effects of businesses acquired: Accounts receivable ( 13,202 ) 8,993 Costs and estimated profits in excess of billings 2,893 7,052 Inventories ( 3,525 ) 754 Prepaid expenses and other assets ( 2,369 ) ( 2,667 ) Accounts payable 6,505 ( 6,811 ) Accrued expenses ( 3,569 ) ( 892 ) Billings in excess of costs and estimated profits 6,764 ( 1,301 ) Income taxes ( 18,908 ) 6,945 Net cash provided by operating activities $ 2,973 $ 26,989 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 19,914 ) ( 2,894 ) Proceeds from the sale of property and equipment 2,699 — Acquisition of businesses, net of cash acquired ( 12,850 ) ( 39,261 ) Net cash used in investing activities $ ( 30,065 ) $ ( 42,155 ) CASH FLOWS FROM FINANCING ACTIVITIES: Principal debt payments ( 1,624 ) ( 1,375 ) Debt issuance costs ( 125 ) — Shares repurchased held in treasury — ( 14,815 ) Payment for acquisition contingent consideration liability ( 3,820 ) ( 983 ) Preferred stock dividends paid ( 23 ) ( 23 ) Payment for employee taxes withheld from stock awards ( 126 ) ( 54 ) Principal payments on finance leases ( 1,365 ) ( 896 ) Net cash used in financing activities $ ( 7,083 ) $ ( 18,146 ) Effect of foreign currency on cash 47 ( 111 ) Net change in cash and restricted cash ( 34,128 ) ( 33,423 ) Cash and restricted cash at beginning of period 148,411 173,211 Cash and restricted cash at end of period $ 114,283 $ 139,788 Supplemental cash flow information ( Note 14 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 DXP ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (in thousands) (unaudited) Series A preferred stock Series B preferred stock Common stock Paid-in capital Retained earnings Accum other comp loss Treasury Stock Total equity Balance at December 31, 2024 $ 1 $ 15 $ 204 $ 219,511 $ 389,670 $ ( 33,610 ) $ ( 153,003 ) $ 422,788 Preferred dividends paid — — — — ( 23 ) — — ( 23 ) Compensation expense for restricted stock — — — 1,317 — — — 1,317 Tax related items for share based awards — — — ( 126 ) — — — ( 126 ) Currency translation adjustment — — — — — 86 — 86 Excise tax on share repurchases — — — — — — 28 28 Net income — — — — 20,589 — — 20,589 Balance at March 31, 2025 $ 1 $ 15 $ 204 $ 220,702 $ 410,236 $ ( 33,524 ) $ ( 152,975 ) $ 444,659 Series A preferred stock Series B preferred stock Common stock Paid-in capital Retained earnings Accum other comp loss Treasury Stock Total equity Balance at December 31, 2023 $ 1 $ 15 $ 345 $ 216,482 $ 319,271 $ ( 31,240 ) $ ( 123,995 ) $ 380,879 Preferred dividends paid — — — — ( 23 ) — — ( 23 ) Compensation expense for restricted stock — — — 864 — — — 864 Tax related items for share based awards — — — ( 54 ) — — — ( 54 ) Currency translation adjustment — — — — — ( 614 ) — ( 614 ) Repurchases of shares — — — — — — ( 16,805 ) ( 16,805 ) Excise tax on share repurchases — — — — — — ( 115 ) ( 115 ) Net income — — — — 11,332 — — 11,332 Balance at March 31, 2024 $ 1 $ 15 $ 345 $ 217,292 $ 330,580 $ ( 31,854 ) $ ( 140,915 ) $ 375,464 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 6 DXP ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - THE COMPANY DXP Enterprises, Inc. together with its subsidiaries (collectively "DXP," the "Company," "us," "we," or "our") was incorporated in Texas on July 26, 1996. DXP Enterprises, Inc. and its subsidiaries are engaged in the business of distributing maintenance, repair and operating ("MRO") products and services to a variety of end markets and business-to-business customers. Additionally, DXP provides integrated, custom pump skid packages, pump remanufacturing and manufactures branded private label pumps to energy and broad industrial customers. The Company is currently organized into three business segments: Service Centers ("SC"), Innovative Pumping Solutions ("IPS"), and Supply Chain Services ("SCS"). See Note 11 - 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 generally accepted accounting principles in the United States of America ("U.S. GAAP"). For interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission ("SEC") not all disclosures normally required in annual consolidated financial statements prepared in accordance with U.S. GAAP are required. The unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2024 that are included in our annual report on Form 10-K filed with the SEC on March 10, 2025 (“Annual Report”). Certain reclassifications were made to the prior year’s consolidated financial statements to conform to the current year presentation. Such reclassifications did not have a material effect on our consolidated statements of operations and comprehensive income, balance sheets, cash flows or equity. The results of operations for the three months ended March 31, 2025 are not necessarily indicative of results expected for the full fiscal year. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary for the fair statement of the Company's financial position, results of operations and cash flows for the interim periods presented. All intercompany accounts and transactions have been eliminated in consolidation. NOTE 3 - 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 would result in additional disclosures being included in our consolidated financial statements, once adopted. We are currently evaluating the provisions of this ASU. 7 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 - FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES 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, discount rates, and an internal rate of return analysis. The fair value measurement includes inputs that are Level 3 inputs 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 each reporting period and reflected in our results of operations. As of March 31, 2025, there was $ 12.7 million in other current and other long-term liabilities for contingent consideration associated with the recent acquisitions. See further discussion at Note 1 2 - Business Acq uisitions . The following table provides a reconciliation of the beginning and ending balances and gains or losses recognized during the three months ended March 31, 2025 ( in thousands ): Contingent Consideration *Beginning balance at December 31, 2024 $ 16,322 Acquisitions and settlements: Acquisitions ( Note 12 ) — Settlements ( 3,820 ) Total remeasurement adjustments: Changes in fair value recorded in other expense (income), net 183 *Ending Balance at March 31, 2025 $ 12,685 *Amounts included in other current liabilities were $ 7.2 million and $ 8.0 million for the periods ending March 31, 2025 and December 31, 2024, respectively. Amounts included in other long-term liabilities were $ 5.5 million and $ 8.3 million for the periods ending March 31, 2025 and December 31, 2024, respectively. Sensitivity to Changes in Significant Unobservable Inputs The significant Level 3 unobservable inputs used in the fair value measurement of contingent consideration related to the acquisitions are annualized EBITDA forecasts developed by the Company's management and the probability of achievement of those EBITDA results. The discount rate used in the calculations was 9.5 percent. Changes in our unobservable inputs in isolation would result in a change to our fair value measurement. As of March 31, 2025, the maximum amount of contingent consideration payable under these arrangements is $ 14.5 million over three years . Other financial instruments not measured at fair value on the Company's unaudited condensed consolidated balance sheets at March 31, 2025 and December 31, 2024, but which require disclosure of their fair values include: cash, restricted cash, accounts receivable, trade accounts payable and accrued expenses. The Company believes that the estimated fair value of such instruments at March 31, 2025 and December 31, 2024 approximates their carrying value as reported on the unaudited condensed consolidated balance sheets due to the relative short maturity of these instruments. See Note 8 - Long-term Debt for fair value disclosures on our asset-backed line of credit and term loan debt under our syndicated credit agreement facilities. 8 NOTE 5 – INVENTORIES Inventories are made up of equipment purchased for resale, and materials utilized in the fabrication of industrial and wastewater equipment stated at lower of cost and net realizable value, primarily determined using the weighted average cost method. The Company reviews inventory and records provisions for the difference between cost and net realizable value arising from excess and obsolete items on hand based upon the aging of the inventories, market trends, and continued demand. The carrying values of inventories are as follows ( in thousands ): March 31, 2025 December 31, 2024 Finished goods $ 93,859 $ 89,780 Work in process 16,017 13,333 Inventories $ 109,876 $ 103,113 NOTE 6 – CONTRACT ASSETS AND LIABILITIES Under our customized pump production and water and wastewater project 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 "Costs and estimated profits in excess of billings". 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 unaudited condensed consolidated balance sheets. Costs and estimated profits on uncompleted contracts and related amounts billed were as follows ( in thousands ): March 31, 2025 December 31, 2024 Costs incurred on uncompleted contracts $ 132,231 $ 122,951 Estimated profits, thereon 63,609 58,373 Total costs and estimated profits on uncompleted contracts 195,840 181,324 Less: billings to date 167,775 143,251 Net $ 28,065 $ 38,073 Such amounts were included in the accompanying unaudited condensed consolidated balance sheets for March 31, 2025 and December 31, 2024 under the following captions ( in thousands ): March 31, 2025 December 31, 2024 Costs and estimated profits in excess of billings $ 47,844 $ 50,735 Billings in excess of costs and estimated profits ( 19,779 ) ( 12,662 ) Net $ 28,065 $ 38,073 During the three months ended March 31, 2025 and 2024, $ 5.1 million and $ 1.4 million of the balances that were previously classified as contract liabilities at the beginning of the period were recognized in revenues, respectively. Contract asset and liability changes were primarily due to normal activity and timing differences between our performance and customer payments. NOTE 7 – INCOME TAXES Income tax expense during interim periods is based on our estimated annual effective income tax rate plus any discrete items, which are recorded in the period in which they occur. Our effective tax rate from continuing operations was a tax expense of 24.2 percent for the three months ended March 31, 2025 compared to a tax expense of 27.2 percent for the three months ended March 31, 2024. Compared to the U.S. statutory rate for the three months ended March 31, 2025, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions recorded for research and development tax credits and partially offset by research and development tax credits and other tax credits. 9 To the extent penalties and interest would be assessed on any underpayment of income tax, such accrued amounts would be classified as a component of income tax provision (benefit) in the financial statements consistent with the Company’s policy. The Organization of Economic Cooperation and Development (OECD) continues to release additional guidance, including administrative guidance on how Pillar Two rules should be interpreted and applied by jurisdictions as they adopt Pillar Two. A number of countries have utilized the administrative guidance as a starting point for legislation that went into effect January 1, 2024. As of March 31, 2025, DXP anticipates the impact of Pillar Two to be immaterial to the Company based on current legislation that has been enacted to date. NOTE 8 – LONG-TERM DEBT Long-term debt consisted of the following ( in thousands ): March 31, 2025 December 31, 2024 ABL Revolver $ — $ — Amended Senior Secured Term Loan B due October 13, 2030 (1) 646,253 647,876 Promissory Note due November 1, 2029 1,000 1,000 Total debt 647,253 648,876 Less: current maturities ( 6,595 ) ( 6,595 ) Total long-term debt $ 640,658 $ 642,281 Unamortized discount and debt issuance costs 19,757 20,597 Long-term debt, net of unamortized discount and debt issuance costs $ 620,901 $ 621,684 (1) The fair value of the Amended Term Loan B due October 13, 2030 using level 2 input values was $ 645.4 million and $ 657.6 million as of March 31, 2025 and December 31, 2024, respectively. 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 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 March 31, 2025 there was $ 646.3 million outstanding under the Amended Senior Secured Term Loan B. Interest rate The interest rate for the Amended Senior Secured Term Loan B was 8.07 % and 8.32 % as of March 31, 2025 and December 31, 2024, respectively. Facility Size Increases The 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 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 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. 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 as of March 31, 2025 to be less than 5.75 to 1.00. As of March 31, 2025, the Company’s Secured Leverage Ratio was 2.50 to 1.00. 10 ABL Revolver: On July 19, 2022, the Company entered into an Amended and Restated Loan and Security Agreement (the “ABL Credit Agreement”) that provided for a $ 135.0 million asset-backed revolving line of credit (the "ABL Revolver"). Subject to the conditions set forth in the ABL Credit Agreement, the ABL Revolver may be increased in increments of $ 10.0 million up to an aggregate of $ 50.0 million. The ABL Revolver matures on July 19, 2027. Interest accrues on outstanding borrowings at a rate equal to SOFR plus a margin ranging from 1.25 % to 1.75 % per annum, or at an alternate base rate, Canadian prime rate or Canadian base rate plus a margin ranging from 0.25 % to 0.75 % per annum, in each case, based upon the average daily excess availability under the ABL Revolver for the most recently completed calendar quarter. Fees payable on the unused portion of the facility range from 0.25 % to 0.375 % per annum. At March 31, 2025 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. Excess Availability The borrowing availability under our credit facility was $ 108.9 million and $ 125.6 million at March 31, 2025 and December 31, 2024, respectively. Interest rate The interest rate for the ABL Revolver was 7.75 % and 7.75 % as of March 31, 2025 and December 31, 2024, respectively. Facility Size Increases The ABL Credit Agreement allows for incremental increases in facility size up to an aggregate of $ 50 million. 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 March 31, 2025, the Company's Fixed Charge Coverage Ratio was 1.88 to 1.00. The Company was in compliance with all financial covenants as of March 31, 2025. 11 As of March 31, 2025, the maturities of long-term debt for the next five years and thereafter were as follows ( in thousands ): Amount 2025 $ 4,971 2026 6,595 2027 6,595 2028 6,595 2029 7,095 Thereafter 615,402 Total $ 647,253 NOTE 9 - EARNINGS PER SHARE 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 ): Three Months Ended March 31, 2025 2024 Basic earnings per share: Weighted average shares outstanding 15,698 16,128 Net income attributable to DXP Enterprises, Inc. $ 20,589 $ 11,332 Convertible preferred stock dividend 23 23 Net income attributable to common shareholders $ 20,566 $ 11,309 Per share amount $ 1.31 $ 0.70 Diluted earnings per share: Weighted average shares outstanding 15,698 16,128 Assumed conversion of convertible preferred stock 840 840 Total dilutive shares 16,538 16,968 Net income attributable to common shareholders $ 20,566 $ 11,309 Convertible preferred stock dividend 23 23 Net income attributable to DXP Enterprises, Inc. $ 20,589 $ 11,332 Per share amount $ 1.25 $ 0.67 As of March 31, 2025 and 2024, the weighted average of the unvested restricted stock awards ("RSAs") were 302,647 and 296,425 shares, respectively. The preferred stock is convertible into 840,000 shares of common stock. NOTE 10 - COMMITMENTS AND CONTINGENCIES From time to time, the Company is a party to various legal proceedings arising in the ordinary course of business. While DXP 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 DXP's consolidated financial position, cash flows, or results of operations. NOTE 11 - SEGMENT REPORTING We have three reportable and operating segments: Service Centers, Innovative Pumping Solutions and Supply Chain Services. 12 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. 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, 2025, we moved certain branch locations previously reported under our IPS segment to our SC segment. Prior period segment information has not been recast, as the changes to our segment composition did not have a material impact on the operating results of our reportable segments. The following table sets out financial information related to the Company's segments excluding amortization ( in thousands ): Three Months Ended March 31, Service Centers Innovative Pumping Solutions Supply Chain Services Total 2025 Total Revenue $ 327,075 $ 86,182 $ 63,312 $ 476,569 Operating income for reportable segments 47,045 13,406 5,564 66,015 Identifiable assets at year end 782,602 319,897 88,481 1,190,980 Capital expenditures 2,037 574 — 2,611 Depreciation 937 795 8 1,740 Amortization of finance leases $ 1,137 $ 192 $ 41 $ 1,370 Three Months Ended March 31, Service Centers Innovative Pumping Solutions Supply Chain Services Total 2024 Total Revenue $ 288,435 $ 62,216 $ 61,984 $ 412,635 Operating income for reportable segments 40,320 6,970 5,262 52,552 Identifiable assets at year end 666,756 261,967 86,850 1,015,573 Capital expenditures 906 640 13 1,559 Depreciation 742 853 8 1,603 Amortization of finance leases $ 772 $ 94 $ 30 $ 896 13 The following table presents reconciliations of income from operations for reportable segments to the consolidated income before taxes ( in thousands ): Three Months Ended March 31, 2025 2024 Income from operations for reportable segments $ 66,015 $ 52,552 Adjustment for: Amortization of intangible assets 5,355 4,369 Corporate expenses 20,145 19,052 Income from operations $ 40,515 $ 29,131 Interest expense 14,660 15,544 Other income, net ( 1,318 ) ( 1,968 ) Income before income taxes $ 27,173 $ 15,555 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 $ 17.3 million and $ 1.3 million for the periods ended March 31, 2025 and 2024, respectively. The Company had identifiable assets at corporate of $ 191.5 million and $ 168.6 million as of March 31, 2025 and 2024, respectively. Corporate depreciation was $ 0.6 million and $ 0.6 million for the periods ended March 31, 2025 and 2024, respectively. Amortization of finance leases for Corporate was $ 0.1 million and $ 0.1 million for the years ended March 31, 2025 and 2024, respectively. NOTE 12 - BUSINESS ACQUISITIONS The Company enters into strategic acquisitions in an effort to better service existing customers and to attract new customers. 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. During the first quarter of 2025, the Company acquired one business for a total of $ 12.9 million. We acquired this company to expand our platforms and to maintain our leading position as the largest distributor of rotating equipment in North America. A summary of the preliminary allocation of the total purchase consideration of our business acquisition during the three months ended March 31, 2025 is presented as follows ( in thousands ): Total Total Acquisitions 1 Total purchase price consideration $ 12,851 Tangible assets acquired 8,030 Intangible assets acquired 3,284 Total assets acquired $ 11,314 Total liabilities assumed ( 4,983 ) Net assets acquired 6,331 Goodwill $ 6,520 14 The total purchase consideration related to our acquisition during the period consisted of cash consideration. The total cash and cash equivalents acquired for this acquisition was $ 0.1 million. Transaction-related costs included within selling, general, and administrative expenses in the consolidated statements of operations was $ 0.3 million for the three months ended March 31, 2025. The goodwill total of approximately $ 6.5 million assigned to our SC segment was primarily attributable to expected synergies and the assembled workforce of the entity. The total amount of goodwill expected to be deductible for tax purposes is $ 6.5 million. The acquisition's operating results are included within the Company's consolidated statements of operations from the date of acquisition, which were not material for the three months ended March 31, 2025. Pro forma results of operations information have not been presented, as the effects of the acquisitions were not material to our financial results. Of the $ 3.3 million of acquired intangible assets, $ 0.2 million was provisionally assigned to non-compete agreements that are subject to amortization over 5 years, and $ 3.1 million was assigned to customer relationships and will be amortized over a period of 8 years. NOTE 13 - SHARE REPURCHASES On December 15, 2022, the Company announced a new Share Repurchase Program pursuant to which it may repurchase up to $ 85.0 million worth, or 2.8 million shares, of the Company's outstanding common stock over the next 24 months from the date of the announcement. The Company completed the program in August 2024. On August 28, 2024, the Company announced a new Share Repurchase Program pursuant to which we may repurchase up to $ 85.0 million worth, or 2.5 million shares of the Company's outstanding common stock over the next 24 months. Total consideration paid to repurchase the shares was recorded in shareholders’ equity as treasury stock. 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: Three Months Ended March 31, (in thousands, except per share data) 2025 2024 Total number of shares purchased — 326.4 Amount paid $ — $ 16,805 Average price paid per share $ — $ 51.49 NOTE 14 - SUPPLEMENTAL CASH FLOW INFORMATION Three Months Ended March 31, (in thousands) 2025 2024 Supplemental disclosures of cash flow information: Cash paid for interest $ 13,695 $ 14,649 Cash paid for income taxes 20,334 14,693 Non-cash investing and financing activities: Treasury shares repurchase accruals $ ( 28 ) $ 2,105 15 NOTE 15 - OTHER INCOME AND EXPENSES The components of other (income) expense were as followed: Three Months Ended March 31, (in thousands) 2025 2024 Interest income ( 1,032 ) ( 1,873 ) Change in fair value of contingent consideration 183 ( 194 ) Other, net ( 469 ) 99 Total ( 1,318 ) ( 1,968 ) NOTE 16 - 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 11 - 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 thousands): Three Months Ended March 31, 2025 2024 Revenues United States $ 457,240 $ 394,880 Canada 18,988 17,075 Other 341 680 Total $ 476,569 $ 412,635 NOTE 17 - SUBSEQUENT EVENT On May 1 st 2025, the Company acquired an industrial repair business located in Sparks, Nevada. We acquired this business to enhance our repair and service capabilities within the rotating equipment market and expand into the Nevada market. The Company used cash on its balance sheet to fund the approximate $ 1.0 million purchase. 16