dxpe-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


			☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended September 30, 2023


			☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from __________ to __________

Commission file number 0-21513

DXP Enterprises, Inc.

(Exact name of registrant as specified in its charter)


Texas						76-0509661
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

5301 Hollister, Houston, Texas 77040

(Address of principal executive offices, including zip code)

(713) 996-4700


(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of Each Class

Trading Symbol

Name of Exchange on which Registered

Common Stock par value $0.01

DXPE

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of registrant's Common Stock, par value $0.01 per share outstanding as of November 3, 2023: 16,176,412.

DXP ENTERPRISES, INC. AND SUBSIDIARIES

TABLE OF CONTENTS


		Page
PART I: FINANCIAL INFORMATION
	ITEM 1. Financial Statements	3
	a) Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income	3
	b) Unaudited Condensed Consolidated Balance Sheets	4
	c) Unaudited Condensed Consolidated Statements of Cash Flows	5
	d) Unaudited Condensed Consolidated Statements of Equity	6
	e) Notes to Unaudited Condensed Consolidated Financial Statements	8
	ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	16
	ITEM 3. Quantitative and Qualitative Disclosures about Market Risk	26
	ITEM 4. Controls and Procedures	27

PART II: OTHER INFORMATION		28
	ITEM 1. Legal Proceedings	28
	ITEM 1A. Risk Factors	28
	ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	28
	ITEM 3. Default upon Senior Securities	28
	ITEM 4. Mine Safety Disclosures	28
	ITEM 5. Other Information	28
	ITEM 6. Exhibits	29

SIGNATURES		30

PART I: FINANCIAL INFORMATION

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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

Sales	$	419,249	$	387,314	$	1,271,556	$	1,074,537
Cost of sales	293,687		275,681		889,101		763,758
Gross profit	125,562		111,633		382,455		310,779
Selling, general and administrative expenses	89,706		85,094		273,720		236,761
Income from operations	35,856		26,539		108,735		74,018
Other expense (income), net	1,234		1,565		522		2,941
Interest expense	12,684		6,833		36,068		17,610
Income before income taxes	21,938		18,141		72,145		53,467
Provision for income tax expense	5,766		5,097		19,339		13,402
Net income	16,172		13,044		52,806		40,065
Net loss attributable to noncontrolling interest	—		(885)		—		(938)
Net income attributable to DXP Enterprises, Inc.	16,172		13,929		52,806		41,003
Preferred stock dividend	22		22		67		67
Net income attributable to common shareholders	$	16,150	$	13,907	$	52,739	$	40,936

Net income	$	16,172	$	13,044	$	52,806	$	40,065
Foreign currency translation adjustments	(844)		(1,156)		(87)		(3,078)
Comprehensive income	$	15,328	$	11,888	$	52,719	$	36,987

Earnings per share (Note 9):
Basic	$	0.98	$	0.74	$	3.08	$	2.19
Diluted	$	0.93	$	0.71	$	2.94	$	2.10

Weighted average common shares outstanding:
Basic	16,516		18,820		17,104		18,712
Diluted	17,356		19,660		17,944		19,552

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

DXP ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands) (unaudited)



	September 30, 2023		December 31, 2022
ASSETS
Current assets:
Cash	$	27,176	$	46,026
Restricted cash	91		91
Accounts receivable, net of allowance of $4,088 and $7,610, respectively	320,972		320,880
Inventories	105,145		101,392
Costs and estimated profits in excess of billings	47,211		23,588
Prepaid expenses and other current assets	15,799		21,644
Income taxes receivable	393		2,493
Total current assets	516,787		516,114
Property and equipment, net	56,277		45,964
Goodwill	342,122		333,759
Other intangible assets, net	67,913		79,585
Operating lease right of use assets, net	48,462		57,402
Other long-term assets	13,543		4,456
Total assets	$	1,045,104	$	1,037,280

LIABILITIES AND EQUITY
Current liabilities:
Current maturities of debt	$	4,369	$	4,369
Trade accounts payable	101,439		100,784
Accrued wages and benefits	35,540		26,260
Customer advances	12,595		20,128
Billings in excess of costs and estimated profits	7,181		10,411

Short-term operating lease liabilities	15,459		18,083
Other current liabilities	45,275		32,866
Total current liabilities	221,858		212,901

Long-term debt, net of unamortized debt issuance costs	408,105		409,205
Long-term operating lease liabilities	34,028		40,189
Other long-term liabilities	15,469		4,701
Deferred income taxes liability	2,068		4,892
Total long-term liabilities	459,670		458,987
Total liabilities	681,528		671,888
Commitments and contingencies (Note 10)
Shareholders' equity:
Series A and B preferred stock, $1.00 par value each; 1,000,000 shares authorized each	16		16
Common stock, $0.01 par value, 100,000,000 shares authorized; 16,176,787 and 17,690,069 outstanding, respectively	345		345
Additional paid-in capital	215,684		213,937
Retained earnings	303,288		250,549
Accumulated other comprehensive loss	(31,762)		(31,675)
Treasury stock, at cost 4,141,989 and 2,435,352 shares, respectively	(123,995)		(67,780)
Total DXP Enterprises, Inc. equity	363,576		365,392


Total liabilities and equity	$	1,045,104	$	1,037,280

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

DXP ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (unaudited)


	Nine Months Ended September 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	52,806		40,065
Reconciliation of net income to net cash provided by operating activities:
Depreciation	6,262		7,367
Amortization of intangibles and fixed assets	15,206		13,958

Provision for (recovery of) credit losses	(277)		834
Payment of contingent consideration liability in excess of acquisition-date fair value	(160)		(781)
Fair value adjustment on contingent consideration	1,502		2,125
Amortization of debt issuance costs	2,176		1,357
Restricted stock compensation expense	2,211		1,368
Deferred income taxes	(10,178)		(3,009)
Changes in operating assets and liabilities:
Accounts receivable, net	2,295		(59,563)
Costs and estimated profits in excess of billings	(23,629)		(12,988)
Accounts payable and accrued expenses	12,868		40,936
Prepaid expenses and other assets	16,583		2,341
Inventories	(3,397)		(27,858)
Billings in excess of costs and estimated profits	(3,232)		721
Other long-term liabilities	(7,261)		(4,617)
Net cash provided by operating activities	$	63,775	$	2,256

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(7,103)		(3,426)

Acquisition of businesses, net of cash acquired	(8,848)		(48,506)
Net cash used in investing activities	$	(15,951)	$	(51,932)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on asset-backed credit facility	7,870		577,999
Repayments on asset-backed credit facility	(7,870)		(537,393)
Repayments under term loan facility	(3,276)		(2,475)
Debt issuance costs	—		(540)
Payment for acquisition contingent consideration liability	(5,090)		(469)
Preferred stock dividends paid	(67)		(67)
Shares repurchased held in treasury	(56,215)		(18,470)
Payment for employee taxes withheld from stock awards	(464)		(292)
Principal payments on finance leases	(1,632)		—
Net cash (used in) provided by financing activities	$	(66,744)	$	18,293
Effect of foreign currency on cash	70		(634)
Net change in cash and restricted cash	(18,850)		(32,017)
Cash and restricted cash at beginning of period	46,117		49,080
Cash and restricted cash at end of period	$	27,267	$	17,063

Supplemental cash flow information (Note 14)

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

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		Treasury stock		Non controlling interest		Accum other comp loss		Total equity
Balance at December 31, 2022	$	1	$	15	$	345	$	213,937	$	250,549	$	(67,780)	$	—	$	(31,675)	$	365,392
Preferred dividends paid	—		—		—		—		(23)		—		—		—		(23)
Restricted stock compensation expense	—		—		—		476		—		—		—		—		476

Tax related items for share based awards	—		—		—		(104)		—		—		—		—		(104)

Currency translation adjustment	—		—		—		—		—		—		—		98		98
Repurchases of shares	—		—		—		—		—		(9,135)		—		—		(9,135)
Net income	—		—		—		—		17,580		—		—		—		17,580
Balance at March 31, 2023	1		15		345		214,309		268,106		(76,915)

SEC Form 10-Q filed by DXP Enterprises Inc.