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19: R8 Summary of Significant Accounting and Business HTML 23K
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(Exact
name of registrant as specified in its charter)
iTexas
i76-0509661
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
i5301 Hollister, iHouston,
iTexasi77040
(Address
of principal executive offices, including zip code)
(i713) i996-4700
(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
iCommon Stock par value $0.01
iDXPE
iNASDAQ
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. iYes[X]
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). iYes[X] 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 [ ] iAccelerated
filer[X] Non-accelerated filer [ ] Smaller reporting company [i☐] Emerging growth company [i☐]
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 [i☐]
No [X]
Number of shares of registrant's Common Stock, par value $0.01 per share outstanding as of July 29, 2022: i18,846,719.
DXP Enterprises, Inc. together with its subsidiaries (collectively "DXP,""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 industrial customers. Additionally, DXP provides integrated, custom pump skid packages, pump remanufacturing and manufactures branded private label pumps to energy and industrial customers. The Company
is organized into ithree business segments: Service Centers ("SC"), Supply Chain Services ("SCS") and Innovative Pumping Solutions ("IPS"). See Note 12 - Segment Reporting for discussion of the business segments.
NOTE
2 - iSUMMARY OF SIGNIFICANT ACCOUNTING AND BUSINESS POLICIES
iBasis of
Presentation
The Company's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and its variable interest entity ("VIE"). The accompanying unaudited condensed consolidated financial statements have been prepared on substantially the same basis as our annual consolidated financial statements and should be read in conjunction with our Annual Report on Form 10-K for the year ended December
31, 2021. For a more complete discussion of our significant accounting policies and business practices, refer to the consolidated Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 5, 2022. The results of operations for the six months ended June 30, 2022 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.
iAll
inter-company accounts and transactions have been eliminated upon consolidation.
NOTE 3 - iRECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements
On
April 1, 2022 we adopted Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, along with its subsequently issued guidance, which provides temporary optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. The provisions of this update are applicable to us through December 31, 2022. The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.
i
Accounting
Pronouncements Not Yet Adopted
In October 2021, the FASB issued Accounting Standards Update (ASU) 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to address diversity in practice on how an acquirer should recognize and measure revenue contracts acquired in a business combination. ASU 2021-08 will require an acquirer to recognize and measure contract
assets acquired and contract liabilities assumed in a business combination in accordance with FASB Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers.
For the Company, ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The ASU should be applied prospectively to business combinations occurring on or after the effective date. Early adoption of ASU 2021-08 is permitted, including in an interim period. The
Company expects the new Standard to have an impact for future acquisitions. From time to time the Company does acquire businesses that perform project-based work and therefore include Contract Assets and Liabilities.
All other new accounting pronouncements that have been issued, but not yet effective, are currently being evaluated and at this time are not expected to have a material impact on our financial position or results of operations.
7
NOTE
4 - iREVISION
During the first quarter of 2022, we identified errors in the translation of the goodwill associated with our investment in our Canadian subsidiaries. We determined that we were not appropriately translating Canadian goodwill in consolidation since acquiring these businesses in 2012 and 2013. The failure to translate these balances resulted in an overstatement of US dollar-based goodwill for several years.
We
assessed the materiality of the errors on prior period financial statements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 99, Materiality, codified in Accounting Standards Codification (ASC) 250, Presentation of Financial Statements. We concluded that the errors were not material to our prior period consolidated financial statements and therefore, amendments of previously filed consolidated financial statements are not required. In accordance with ASC 250, we have corrected the errors by revising the unaudited condensed consolidated financial statements presented herein. Prior periods not presented herein will be revised, as applicable, in future filings.
i
The
impacts of the revisions on the periods presented herein are provided in the following tables.
NOTE
5 - iiFAIR 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 come from quoted prices (unadjusted) in active markets for identical assets or liabilities.
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 are unobservable inputs for an 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 managements 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 earn-out consideration are measured each reporting period and reflected in our results of operations.
As of June 30, 2022, we recorded liabilities in other current and long-term liabilities for contingent consideration associated with the acquisitions of Process Machinery, Inc. ("PMI"), Burlingame Engineers, Inc. ("Burlingame"), Drydon Equipment, Inc. ("Drydon") and Cisco Air Systems, Inc. ("Cisco") of $i2.4
million, $i0.2 million, $i2.7 million and $i4.5
million, respectively. See further discussion at Note 13 - Business Acquisitions. iFor 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 six months ended June 30, 2022:
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
The amount of total losses included in earnings or changes to net assets, attributable to changes in unrealized losses relating to liabilities still held
at June 30, 2022.
$
i1,689
* Included in other current and long-term liabilities
9
Quantitative
Information about Level 3 Fair Value Measurements
i
The significant unobservable inputs used in the fair value measurement of the Company's contingent consideration liabilities designated as Level 3 are as follows:
Contingent consideration: (PMI,Burlingame,Drydon and Cisco acquisitions)
$
i9,767
Discounted cash flow
Annualized
EBITDA and probability of achievement
/
Sensitivity to Changes in Significant Unobservable Inputs
As presented in the table above, the significant unobservable inputs used in the fair value measurement of contingent consideration related to the acquisition of PMI, Burlingame, Drydon and Cisco 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 i7.6%. Significant
increases (decreases) in these unobservable inputs in isolation would result in a significantly (lower) higher fair value measurement.
Other financial instruments not measured at fair value on the Company's unaudited condensed consolidated balance sheets at June 30, 2022 and December 31, 2021, but which require disclosure of their fair values include: cash, trade accounts receivable, trade accounts payable and accrued expenses, accrued payroll and related benefits, and the revolving line of credit and term loan debt under our syndicated credit agreement facility (Note 9).
Due to the short-term nature of these aforementioned securities, the Company believes that the estimated fair value of such instruments at June 30, 2022 and December 31, 2021 approximates their carrying value as reported on the unaudited condensed consolidated balance sheets.
NOTE 6 – iINVENTORIES
i
The
carrying values of inventories are as follows (in thousands):
Under our customized pump production and long-term water and wastewater project contracts in our IPS segment, 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. Our contract assets are presented as “Cost and estimated profits in excess of billings” on our unaudited condensed 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 unaudited condensed consolidated balance sheets.
i
Costs
and estimated profits on uncompleted contracts and related amounts billed were as follows (in thousands):
Such
amounts were included in the accompanying unaudited condensed consolidated balance sheets for June 30, 2022 and December 31, 2021 under the following captions (in thousands):
During
the six months ended June 30, 2022, $i3.5 million of the balances that were previously classified as contract liabilities at the beginning of the period were recognized in revenues. Contract asset and liability changes were primarily due to normal activity and timing differences between our performance
and customer payments.
NOTE 8 – iINCOME 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 i25.5
percent for the three months ended June 30, 2022 compared to a tax expense of i17.4 percent for the three months ended June 30, 2021. Compared to the U.S. statutory rate for the three months ended June 30, 2022, 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
was partially offset by research and development tax credits and other tax credits. Compared to the U.S. statutory rate for the three months ended June 30, 2021, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions for research and development tax credits and was partially offset by research and development tax credits and other tax credits.
Our effective tax rate from continuing operations was a tax expense of i23.5
percent for the six months ended June 30, 2022 compared to a tax expense of i26.7 percent for the six months ended June 30, 2021. Compared to the U.S. statutory rate for the six months ended June 30, 2022, 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 was
partially offset by research and development tax credits and other tax credits. Compared to the U.S. statutory rate for the six months ended June 30, 2021, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses and uncertain tax positions for research and development tax credits and was partially offset by research and development tax credits and other tax credits.
To the extent penalties and interest would be assessed on any underpayment of income tax, such accrued amounts would be classified as a component of income tax provision (benefit) in the financial statements consistent with the Company’s policy.
NOTE
9 – iLONG-TERM DEBT
i
The components of the Company's long-term debt consisted of the following (in
thousands):
(1)
Carrying value amounts do not include unamortized debt issuance costs of $i7.1 million and $i8.0 million
for June 30, 2022 and December 31, 2021, respectively.
/
Credit Agreements
On March 17, 2020, the Company entered into an Increase Agreement (the "Increase Agreement") that provided for a $i135.0
million asset-backed revolving line of credit (the "ABL Revolver"), a $i50.0 million increase above the $i85.0
million original revolver. The Increase Agreement amends and supplements that certain Loan and Security Agreement, dated as of August 29,
11
2017. As of June 30, 2022, the Company had $i29.1 million outstanding under the ABL Revolver and $i103.0
million of borrowing capacity, net of the impact of outstanding letters of credit.
On December 23, 2020, DXP entered into a new iseven year, $i330 million
Senior Secured Term Loan B (the “Term Loan B Agreement”), which replaced DXP’s previously existing Senior Secured Term Loan.
The fair value measurements used by the Company are considered Level 2 inputs, as defined in the fair value hierarchy. The fair value estimates were based on quoted prices for identical or similar securities.
The Company was in compliance with all financial covenants under the ABL Revolver and Term Loan B Agreements as of June 30, 2022.
NOTE
10 - iEARNINGS 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.
i
The
following table sets forth the computation of basic and diluted earnings per share for the periods indicated (in thousands, except per share data):
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 12 - iSEGMENT REPORTING
The Company's reportable business segments are: Service Centers, Innovative Pumping Solutions and Supply Chain Services. The Service Centers segment
is engaged in providing MRO products, equipment and integrated services, 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, 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.
12
The
high degree of integration of the Company's operations necessitates the use of a substantial number of allocations and apportionments in the determination of business segment information. Sales are shown net of inter-segment eliminations.
i
The following table sets out financial information related to the Company's segments excluding amortization
(in thousands):
1Product
sales that are recognized at a point in time.
2 Inventory management services that are recognized over the contract life.
3Staffing services that are invoiced on a day-rate basis.
4Custom pump production and delivery is recognized over time.
5Income from operations excludes amortization of intangibles and corporate expenses.
a During Q2 2022, we identified an error related to service revenue which resulted in a reclassification between product sales and service revenue. We assessed the materiality of the
error on prior period financial statements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 99, Materiality, codified in Accounting Standards Codification (ASC) 250, Presentation of Financial Statements. We concluded that the error was not material to our prior period consolidated financial statements and therefore, amendments of previously filed consolidated financial statements are not required. In accordance with ASC 250, we have corrected the error by revising the consolidated financial statements presented herein. Prior periods not presented herein will be revised, as applicable, in future filings.
/
13
i
The
following table presents reconciliations of operating income for reportable segments to the consolidated income before taxes (in thousands):
On May 2, 2022, the Company completed the acquisition of Cisco. Cisco is a leading distributor of air compressors and related products and services focused on serving the food and beverage, transportation and general industrial markets in the Northern California and Nevada territories. Total consideration for the transaction
was approximately $i52.2 million, funded with a mixture of cash on hand of $i32 million, DXP stock
valued at approximately $i4 million and a draw down of approximately $i11 million
on the ABL and future consideration of $i4.5 million. For the six months ended June 30, 2022, Cisco contributed sales of $i8.2
million and net income of $i1.6 million. Goodwill for the transaction totaled approximately $i34.5
million.
On March 1, 2022, the Company completed the acquisition of Drydon Equipment, Inc., a distributor and manufacturers’ representative of pumps, valves, controls and process equipment focused on serving the water and wastewater industry in the Midwest. The acquisition of Drydon was funded with cash on hand as well as issuing DXP's common stock. The Company paid approximately $i7.9
million in cash, stock and future consideration. A majority of Drydon's sales are project-based work under the percentage-of-completion accounting model. As a result, Drydon has been included in the IPS segment. For the six months ended June 30, 2022, Drydon contributed sales of $i2.7 million and net income of $i0.7
million. Goodwill for the transaction totaled approximately $i4.9 million.
On March 1, 2022, the Company completed the acquisition of certain assets of Burlingame Engineers, Inc., a provider of water and wastewater equipment in the industrial and municipal sectors. The Company paid approximately $i1.1
million in cash, stock and future consideration. For the six months ended June 30, 2022, Burlingame contributed sales of $i0.9 million and net income of $i70
thousand. Goodwill for the transaction totaled approximately $i0.6 million.
i
The following represents the pro forma unaudited revenue and earnings as if Cisco, Drydon and Burlingame
had been included in the consolidated results of the Company for the six months ended June 30, 2022 and 2021, respectively:
In
aggregate, the acquisition-date fair value of the consideration transferred for the ithree businesses totaled $i61.2 million,
which consisted of the following:
Purchase Price Consideration (in millions)
Total Consideration
Cash payments
$
i49.3
Fair
value of stock issued
i4.7
Future consideration
i7.2
Total
purchase price consideration
$
i61.2
/
The fair value of the i230,699
common shares issued was determined based on the closing market price of the Company’s common shares on the acquisition date, adjusted for holding restrictions following consummation.
15
i
The following table summarizes
the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date:
Acquisitions
(In thousands)
Cisco
All Other
Total
Cash
$
i4,352
$
i517
$
i4,869
Accounts
receivable
i5,173
i2,698
i7,871
Other
receivables
i—
i56
i56
Inventory
i3,032
i37
i3,069
Other
current assets
i472
i—
i472
Non-compete
agreements
i878
i229
i1,107
Customer
relationships
i10,730
i964
i11,694
Property
and equipment
i1,187
i124
i1,311
Operating
lease ROU asset
i2,168
i—
i2,168
Other
assets
i—
i2
i2
Assets
acquired
$
i27,992
$
i4,627
$
i32,619
Short-term
operating lease liability
(i463)
i—
(i463)
Current
liabilities assumed
(i5,208)
(i1,061)
(i6,269)
Long-term
operating lease liability
(i1,705)
i—
(i1,705)
Deferred
tax liability
(i2,897)
i—
(i2,897)
Net
assets acquired
$
i17,719
$
i3,566
$
i21,285
Total
Consideration
i52,184
i9,049
i61,233
Goodwill
$
i34,465
$
i5,483
$
i39,948
/
Of
the $i12.8 million of acquired intangible assets, $i1.1 million was provisionally assigned to non-compete agreements that
are subject to amortization over i5 years, coincident with the terms of the agreements. In addition, $i11.7 million was assigned to customer
relationships, and will be amortized over a period of i8 years. The goodwill total of approximately $i39.9 million is attributable primarily to expected synergies and the assembled workforce of each entity and
is generally not deductible for tax purposes.
The fair value of accounts receivables acquired is $i7.9 million, which approximated book value.
The Company recognized
less than $i300,000 of acquisition related costs that were expensed in the current period. These costs are included in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income in Selling, General and Administrative costs. The Company also recognized an immaterial amount in costs associated with issuing the shares issued as consideration in the business combination. Those costs were deducted from the recognized proceeds
of issuance within stockholders’ equity.
16
NOTE 14 - iSHARE REPURCHASE
On May 12, 2021, the
Company announced that its Board of Directors authorized a share repurchase program (the “program”) under which up to $i85.0 million or i1.5 million
shares of its outstanding common stock may be acquired in the open market over the next i24 months at the discretion of management. During the six months ended June 30, 2022, the Company repurchased i58.9
thousand shares of common stock for $i1.5 million at an average price of $i25.66 per share.
Total
consideration paid to repurchase the shares was recorded in shareholders’ equity as treasury shares. Such consideration was funded with existing cash balances and an agreement to pay sellers over ifour equal quarterly installments beginning on June 15, 2021 which are presented within the purchase of treasury stock in the cash flow statement. There are no installment payments outstanding.
i
Three
Months Ended June 30,
Six Months Ended June 30,
(in thousands, except per share data)
2022
2022
Total number of shares purchased
i—
i58.9
Amount
paid
$
i—
$
i1,511
Average
price paid per share
$
i—
$
i25.66
/
NOTE
15 - iSUBSEQUENT EVENT
On July 19, 2022the Company entered into an Amended and Restated Loan and Security Agreement (the “ABL Credit Agreement”) that provided for a $i135.0 million
asset-backed revolving line of credit (the "ABL Revolver"). The ABL Credit Agreement amends and restates the Loan and Security Agreement dated as of August 29, 2017. Subject to the conditions set forth in the ABL Credit Agreement, the ABL Revolver may be increased by up to an aggregate of $i50.0 million, in minimum increments of $i10.0 million.
The ABL Revolver matures on July 19, 2027.
17
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management discussion and analysis ("MD&A") of the financial condition and results of operations of DXP Enterprises, Inc. together with its subsidiaries (collectively "DXP,""Company,""us,""we," or "our") for the six months ended June
30, 2022 should be read in conjunction with our previous Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q, and the consolidated financial statements and notes thereto included in such reports. The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP").
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this "Report") contains statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements include without limitation those about the
Company’s expectations regarding the long-term impacts of the COVID-19 pandemic, the prolonged Ukrainian/Russia conflict and its impact on commodity prices; particularly oil and gas; the Company’s business, the Company’s future profitability, cash flow, liquidity, and growth. Such forward-looking statements can be identified by the use of forward-looking terminology such as "believes", "expects", "may", "might", "estimates", "will", "should", "could", "would", "suspect", "potential", "current", "achieve", "plans" or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. Any such forward-looking statements are not guarantees
of future performance and may involve significant risks and uncertainties, and actual results may vary materially from those discussed in the forward-looking statements or historical performance as a result of various factors. These factors include the effectiveness of management's strategies and decisions, our ability to implement our internal growth and acquisition growth strategies, general economic and business conditions specific to our primary customers, changes in government regulations, our ability to effectively integrate businesses we may acquire, new or modified statutory or regulatory requirements, availability of materials and labor, inability to obtain or delay in obtaining government or third-party approvals and permits, non-performance by third parties of their contractual obligations, unforeseen hazards such as weather conditions, acts of war or terrorist acts and the governmental or military response thereto, cyber-attacks adversely affecting our operations,
other geological, operating and economic considerations and declining prices and market conditions, including reduced oil and gas prices and supply or demand for maintenance, repair and operating products, equipment and service, decreases in oil and natural gas industry capital expenditure levels, which may result from decreased oil and natural gas prices or other factors, economic risks related to the long-term impact of COVID-19, our ability to manage changes and the continued health or availability of management personnel, and our ability to obtain financing on favorable terms or amend our credit facilities, as needed. This Report identifies other factors that could cause such differences. We cannot assure that these are all of the factors that could cause actual results to vary materially from the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in "Risk Factors", in our
Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 5, 2022. We assume no obligation and do not intend to update these forward-looking statements. Unless the context otherwise requires, references in this Report to the "Company", "DXP", "we" or "our" shall mean DXP Enterprises, Inc., a Texas corporation, together with its subsidiaries.
CURRENT MARKET CONDITIONS AND OUTLOOK
General
DXP Enterprises, Inc. is a business-to-business distributor of MRO products and services to a variety of customers in different end markets
primarily across North America. Additionally, we fabricate, remanufacture and assemble custom pump packages along with manufacturing branded private label pumps.
Ukrainian - Russia Conflict
In February 2022, Russia invaded Ukraine. DXP has no direct exposure to Russia or Ukraine, however, the Company continues to monitor any broader impact in the global economy, including inflation and cost pressures, supply chains and energy prices. The full impact of the conflict on the Company’s business and financial results remains uncertain and will depend on the severity and duration of the war and its impact on global economic conditions.
Inflation
The
global commodity and labor markets experienced significant inflationary pressures attributable to economic recovery and supply chain issues tightening caused by the COVID-19 pandemic and the Ukrainian-Russia conflict mentioned above. These
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inflationary trends increased the cost of many of the products we buy. As a distributor, we often remain neutral to inflation as those costs are generally passed onto customers. The Company was able to pass price increases onto customers and implement other strategies designed to mitigate some of the adverse effects of higher costs during the six months ended June 30, 2022.
COVID-19
PandemicImpact
The COVID-19 pandemic began in the first quarter of 2020 and continued throughout the six months ended June 30, 2022, causing disruptions in the U.S. and global markets. While the ongoing recovery continues, it has been accompanied by a resurgence in demand, as industries return to regular operations.The full extent and long-term impacts on the Company’s business and financial results will depend on several uncertain and unpredictable developments including any continued spread of the virus and its variants, the availability and effectiveness of treatments and vaccines, imposition of protective public safety measures and the overall impact
of government measures to combat the spread of the virus. We are not able to predict whether our customers will continue to operate at their current or historical levels, and such decreases in their operations would have a negative impact on our business. We are also unable to predict how long the COVID-19 pandemic will last and the impact of the pandemic on future demand for our products and services.
For additional discussion of the potential impact of the COVID-19 pandemic on our business, see Part I, Item 1A: Risk Factors in the Company’s 2021 Form 10-K.
Matters Affecting Comparability
There were 127 business days in the six months
ended June 30, 2022 and 126 business days in the six months ended June 30, 2021.
Outlook
Service Centers and Supply Chain Services Segments
The replacement and mission-critical nature of our products and services within the Company's Service Centers and Supply Chain Services business segments and industrial and manufacturing environments and processes drives a demand and outlook that are correlated with global, national and regional industrial production, capacity utilization and long-term GDP growth. The
Company's recent order activity improved as markets strengthened. For the six months ended June 30, 2022, we had approximately $576.4 million in sales in our Service Centers and Supply Chain Services segment, an increase of approximately 22.3 percent over the six months ended June 30, 2021. We expect financial results to continually improve with interim periods of potential setback should new COVID-19 variants arise or other economic headwinds prevail.
Innovative Pumping Solutions Segment
For the six months ended June 30, 2022, we had approximately $110.8 million in sales in our Innovative Pumping Solutions segment, an increase of approximately $50.9
million over the six months ended June 30, 2021, of which $18.0 million was associated with recent acquisitions in the water and wastewater markets. Beginning in the latter half of 2021, we began to see an improvement in the demand for oil and natural gas as the roll out of the COVID-19 vaccinations gradually improved around the globe and pandemic restrictions eased. The increasing optimism related to oil and gas demand recovery led to higher commodity prices. Although demand levels remained below pre-pandemic levels, there is growing confidence of returning to 2019 levels in the coming years. In the first quarter of 2022, the Ukrainian-Russia conflict caused further disruption in the global oil and gas supply and spurred price increases around the world. These forces contributed to higher spending by oil and gas producers and thus an increase in oil and gas projects within our Innovative Pumping Solutions segment. We
expect to benefit from the increased activity throughout 2022.
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RESULTS OF OPERATIONS
(in thousands, except percentages and per share data)
DXP is organized into three business segments: Service Centers ("SC"), Supply Chain Services ("SCS") and Innovative Pumping Solutions ("IPS"). The Service Centers are engaged in providing MRO products, equipment and integrated services, including technical expertise and logistics capabilities, to industrial customers with the ability to provide same day delivery. The Service
Centers provide a wide range of MRO products and services in the rotating equipment, bearing, power transmission, hose, fluid power, metal working, industrial supply and safety product and service categories. The SCS segment provides a wide range of MRO products and manages all or part of our customer's supply chain function, and inventory management. The IPS segment fabricates and assembles integrated pump system packages custom made to customer specifications, remanufactures pumps and manufactures branded private label pumps.
SALES. Sales for the three months ended June 30, 2022 increased $82.1 million, or 28.7 percent, to approximately $367.8 million from $285.7 million for the prior year's corresponding period.
Sales from businesses acquired for three months ended June 30, 2022, accounted for $21.3 million of the sales for the three months ended June 30, 2022. This overall sales increase is the result of an increase in sales in our SC, IPS and SCS segments of $41.5 million, $21.1 million and $19.6 million, respectively. The fluctuations in sales are further explained in our business segment discussions below.
Service Centers segment. Sales
for the SC segment increased by approximately $41.5 million, or 19.8 percent for the three months ended June 30, 2022 compared to the prior year's corresponding period. Excluding $12.5 million of Service Centers segment sales associated with recent acquisitions, sales increased $29.0 million from the prior year's corresponding period. This sales increase is primarily the result of increased sales of rotating equipment, safety supplies, metal working, and bearings and power transmission products to customers engaged in variety of markets as a result of the lifting of pandemic restrictions and a return to normal production and activity.
Innovative Pumping Solutions segment. Sales for the IPS segment increased by $21.1 million, or 57.3 percent, for the three months ended June
30, 2022 compared to the prior year's corresponding period. Excluding $8.8 million of IPS segment sales from recent acquisitions, IPS segment sales increased $12.2 million from the prior year's corresponding period. This increase was primarily the result of an increase in the capital spending by oil and gas producers and related businesses.
Supply Chain Services segment. Sales for the SCS segment increased by $19.6 million, or 49.8 percent, for the three months ended June 30, 2022, compared to the prior year's corresponding period. The improved sales are primarily related to the addition of a new customer in the diversified chemicals market, as well as sales increases in the medical technology, food and beverage and oil and gas markets.
GROSS
PROFIT. Gross profit as a percentage of sales for the three months ended June 30, 2022 was 28.3 percent versus 29.8 percent in the prior year's corresponding period. Excluding the impact of the businesses acquired, gross profit as a percentage of sales was 28.0 percent. The decrease in the gross profit percentage excluding the businesses acquired is primarily the result of a decrease within our SCS segment.
Service Centers segment. As a percentage of sales, the second quarter gross profit percentage for the SC segment decreased approximately 48 basis points. Adjusting for the businesses acquired, gross profit as a percentage of sales decreased approximately 73 basis points from the prior year's corresponding period. This was primarily as a result of product mix. Gross profit for the SC segment, excluding
businesses acquired, increased $7.2 million, or 11.1 percent, during the three months ended June 30, 2022 compared to the prior year’s corresponding period.
Innovative Pumping Solutions segment. As a percentage of sales, the second quarter gross profit percentage for the IPS segment increased approximately 9 basis points. Adjusting for the businesses acquired, gross profit as a percentage of sales decreased approximately 50 basis points from the prior year's corresponding period. The aforementioned decrease in gross profit percentage as a percentage of sales is primarily due to a mix shift (lower margin oil and gas work versus domestic water and wastewater projects). Gross profit dollars increased $3.4 million compared to the prior year corresponding period, excluding business acquired, primarily as a result of
an increase in project work as a result of an increase in capital spending by our customers.
Supply Chain Services segment. Gross profit as a percentage of sales for the SCS segment decreased approximately 635 basis points compared to the prior year's corresponding period. Gross profit for the second quarter of 2022 increased $1.0 million or 10.8% compared to the prior year's corresponding period.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). Selling, general and administrative expense for the three months ended June 30, 2022 increased by approximately $7.9 million, or 11.2%, to $78.3 million from $70.4 million for the prior year's corresponding period. Selling, general and administrative expense from businesses
acquired accounted for $4.0 million. Excluding expenses from businesses acquired, SG&A for the quarter increased by $3.9 million, or 5.5%. The increase in SG&A excluding businesses acquired is primarily the result of increased payroll, incentive compensation and related taxes and 401(k) expenses as a result of increased business activity associated with recovery from the negative economic impacts of the COVID-19 pandemic.
OPERATING INCOME. Operating income for the second quarter of 2022 increased by $11.1 million to $25.9 million, from $14.8 million in the prior year's corresponding period. This increase in operating income is primarily related to the aforementioned increased business activity across all segments.
INTEREST EXPENSE. Interest expense for the second
quarter of 2022 remained materially consistent with an increase of $0.3 million compared with the prior year's corresponding period.
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INCOME TAXES. Our effective tax rate from continuing operations was a tax expense of 25.5 percent for the three months ended June 30, 2022 compared to a tax expense of 17.4 percent for the three months ended June 30, 2021. Compared to the U.S. statutory rate for the three months ended June 30, 2022, 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 was partially offset by research and development tax credits and other tax credits. Compared to the U.S. statutory rate for the three months ended June 30, 2021, 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.
SALES. Sales for the six months ended June 30, 2022 increased $155.9 million, or 29.4 percent, to approximately $687.2 million from $531.3 million for the prior year's corresponding period. Sales from businesses acquired accounted for $34.5 million of the sales for the six months ended June 30, 2022. This sales increase is the result of an increase in sales in our SC, IPS and SCS segments of $73.9 million, $50.9 million and $31.2 million, respectively. The fluctuations in sales are further explained in our business segment discussions below.
Service Centers segment. Sales for the SC segment increased by $73.9 million, or 18.7 percent for the six months ended June 30, 2022 compared to the prior year's corresponding period. Excluding $16.5 million of Service Center segment sales for the six months
ended June 30, 2022 from businesses acquired, SC segment sales increased $57.4 million, or 14.5 percent from the prior year's corresponding period. This sales increase is primarily the result of increased sales of metal working products, safety services and bearings product lines to customers engaged in operating and maintenance services in oil and gas markets in connection with increased capital spending by oil and gas producers.
22
Innovative Pumping Solutions segment. Sales for the IPS segment increased by $50.9 million, or 84.8 percent for the six months ended June
30, 2022 compared to the prior year's corresponding period. Excluding $18.0 million of IPS segment sales for the six months ended June 30, 2022 from businesses acquired, IPS segment sales increased $32.9 million, or 54.9 percent from the prior year's corresponding period. This increase was primarily the result of an increase in the capital spending by oil and gas producers and related businesses. The current level of IPS sales activity could continue during the remainder of 2022, as a result of increased optimism related to oil and gas demand recovery.
Supply Chain Services segment. Sales for the SCS segment increased by $31.2 million, or 41.4 percent, for the six months ended June 30, 2022, compared to the prior year's corresponding period. The improved sales
are primarily related to increased sales to customers in the food and beverage, general manufacturing and aerospace industries as pandemic restrictions subsided and the economy rebounded.
GROSS PROFIT. Gross profit as a percentage of sales for the six months ended June 30, 2022 decreased by approximately 56 basis points from the prior year's corresponding period. Excluding the impact of the businesses acquired, gross profit as a percentage of sales decreased by approximately 84 basis points. The decrease in the gross profit percentage is primarily the result of an approximate 311 basis point and 288 basis point decrease in the gross profit percentage in our SC and IPS segments partially offset by a 24 basis point increase in the gross profit percentage in our SC segment, excluding businesses acquired.
Service
Centers segment. As a percentage of sales, the six months ended June 30, 2022 gross profit percentage for the Service Centers increased approximately 34 basis points from the prior year's corresponding period. This was primarily the result of increased sales of rotating equipment and bearings and power transmission products to customers engaged in non-oil and gas markets as well as the positive impact of the businesses acquired.
Innovative Pumping Solutions segment. As a percentage of sales, the six months ended June 30, 2022 gross profit percentage for the IPS segment decreased approximately 185 basis points from the prior year's corresponding period. The decrease in gross profit percentage as a percentage of sales is primarily due to a mix
shift (lower margin oil & gas work versus domestic water and wastewater projects). Gross profit dollars increased $14.2 million, primarily as a result of an increase in the capital spending by oil and gas producers and related businesses.
Supply Chain Services segment. Gross profit as a percentage of sales decreased approximately 311 basis points, compared to the prior year's corresponding period. Gross profit for the six months ended June 30, 2022 increased $4.1 million or 22.9 percent compared to the prior year's corresponding period.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). Selling, general and administrative expense for the six months ended June 30,
2022 increased by approximately $15.8 million, or 11.7 percent, to $151.7 million from $135.8 million for the prior year's corresponding period. Selling, general and administrative expense from businesses acquired accounted for $6.3 million. Excluding expenses from businesses acquired, SG&A for the six months ended June 30, 2022 increased by $9.6 million, or 7.1 percent. The increase in SG&A excluding businesses acquired is primarily the result of increased payroll, incentive compensation and related taxes and 401(k) expenses as a result of increased business activity associated with recovery from the negative economic impacts of the COVID-19 pandemic.
OPERATING INCOME. Operating income for the six months ended June 30, 2022 increased by $26.4 million
or 125.2% to $47.5 million from $21.1 million in the prior year's corresponding period. This increase in operating income is primarily related to the aforementioned increased business activity across all segments.
INTEREST EXPENSE. Interest expense for the six months ended June 30, 2022 remained materially consistent with an increase of $0.2 million compared with the prior year's corresponding period.
INCOME TAXES. Our effective tax rate from continuing operations was a tax expense of 23.5 percent for the six months ended June 30, 2022 compared to a tax expense of 26.7 percent for the six months ended June 30,
2021. Compared to the U.S. statutory rate for the six months ended June 30, 2022, 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 was partially offset by research and development tax credits and other tax credits. Compared to the U.S. statutory rate for the six months ended June 30, 2021, the effective tax rate was increased by state taxes, foreign taxes, and uncertain tax positions recorded for research and development tax credits and was partially offset by research and development tax credits and other tax credits.
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LIQUIDITY
AND CAPITAL RESOURCES
General Overview
As ofJune 30, 2022, we had cash and restricted cash of $20.7 million and credit facility availability of $103.0 million. We have a $135.0 million asset backed revolving line of credit (the "ABL Revolver"), partially offset by letters of credit of $2.9 million, that was due to mature in August 2022, which we had borrowings of $29.1 million outstanding as of June 30, 2022 and a Term Loan B with $325.1 million in borrowings as of June 30, 2022. On July 19, 2022, the
Company amended and extended the ABL Revolver prior to the August deadline. The ABL Revolver matures on July 19, 2027.
Our primary source of capital is cash flow from operations, supplemented as necessary by bank borrowings or other sources of financing. As a distributor of MRO products and services and fabricator of custom pumps and packages, working capital can fluctuate as a result of changes in inventory levels, accounts receivable and costs in excess of billings for project work. Additional cash is required for capital items for information technology, warehouse equipment, leasehold improvements, pump manufacturing equipment and safety services equipment. We also require cash to pay our lease obligations and to service our debt.
The following table summarizes our net
cash flows generated by operating activities, net cash used in investing activities and net cash used in financing activities for the periods presented (in thousands):
The Company generated $5.7 million of cash from operating activities during the six months ended June 30, 2022 compared to $16.2 million of cash generated during the prior year's corresponding period. The $10.5 million decrease in the amount of cash provided between the two periods was primarily driven by the increase in project work activity during the period. Cash is generally used
to fund project costs ahead of actual billings and collection.
Investing Activities
For the six months ended June 30, 2022, net cash used in investing activities was $46.0 million compared to a $44.7 million use of cash during the prior year’s corresponding period. This $1.3 million increase was primarily driven by the sale of a corporate asset in 2021 totaling $1.3 million without comparable activity in the current year which partially offset spending in 2021.
Financing Activities
For the six months ended June 30, 2022, net cash provided by financing activities was $12.0 million, compared to
net cash used in financing activities of $12.0 million during the prior year’s corresponding period. The activity in the period was primarily attributed to a net drawdown on the ABL Revolver. Partially offsetting cash provided by the drawdown was the final share repurchase installment payment of $13.6 million related to shares authorized for repurchase in 2021, as well as current period share purchases of $1.5 million.
On May 12, 2021, the Company announced that its Board of Directors authorized a share repurchase program (the “program”) under which up to $85.0 million or 1.5 million shares of its outstanding common stock may be acquired in the open market over the next 24 months at the discretion of management. During the six months ended June
30, 2022 we purchased approximately 59 thousand shares for approximately $1.5 million. Such consideration was funded with existing cash balances and an agreement to pay sellers over four equal quarterly installments beginning on June 15, 2021 which are presented within the purchase of treasury stock in the cash flow statement. There are no installment payments outstanding.
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Funding Commitments
We intend to pursue additional acquisition targets, but the timing, size or success of any acquisition and the related potential capital commitments cannot be determined with certainty. We continue to expect to fund
future acquisitions primarily with cash flows from operations and borrowings, including the undrawn portion of the credit facility or new debt issuances, but may also issue additional equity either directly or in connection with acquisitions. There can be no assurance that additional financing for acquisitions will be available at terms acceptable to the Company.
The Company believes it has adequate funding and liquidity to meet its normal working capital needs during the next twelve months. However, the Company may require additional debt outside of our credit facilities or equity financing to fund potential acquisitions. Such additional
financings may include additional bank debt or the public or private sale of debt or equity securities. In connection with any such financing, the Company may issue securities that dilute the interests of our shareholders.
DISCUSSION OF SIGNIFICANT ACCOUNTING AND BUSINESS POLICIES
Critical accounting and business policies are those that are both most important to the portrayal of a company's financial position and results of operations, and require management's subjective or complex judgments. These policies have been discussed with the Audit Committee of the Board of Directors of DXP.
The Company's
unaudited condensed financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of the Company, its wholly owned subsidiaries and its variable interest entity ("VIE"). The accompanying unaudited Condensed Consolidated Financial Statements have been prepared on substantially the same basis as our annual Consolidated Financial Statements and should be read in conjunction with our annual report on Form 10-K for the year ended December 31, 2021. For a more complete discussion of our significant accounting policies and business practices, refer to the consolidated annual
report on Form 10-K filed with the Securities and Exchange Commission on April 5, 2022. The results of operations for the six months ended June 30, 2022 are not necessarily indicative of results expected for the full fiscal year.
ITEM
3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
For quantitative and qualitative disclosures about market risk, see Item 7A, 'Quantitative and Qualitative Disclosures About Market Risk,' of our Annual Report on Form 10-K for the year ended December 31, 2021. Our exposures to market risk have not changed materially since December 31, 2021.
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ITEM 4: CONTROLS AND PROCEDURES.
With
the participation of management, our principal executive officer and principal financial officer carried out an evaluation, pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of June 30, 2022 because of the material weaknesses in internal control over financial reporting described below.
Notwithstanding these material weaknesses, our management, including our principal executive officer and principal financial officer, has concluded that the condensed
consolidated financial statements included in this Quarterly Report on Form 10-Q are fairly stated in all material respects in accordance with GAAP for each of the periods presented.
Material Weaknesses in Internal Control Over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the preparation of our financial statements for 2020 and 2021, we identified certain control deficiencies in the design and operation of our internal control over financial reporting that constituted material weaknesses. The material weaknesses are:
Material
weakness related to unvouchered purchase order receipts: We did not design and maintain effective controls over the timely clearing of discrepancies arising from our three-way-match process. Specifically, controls were not designed appropriately to ensure that aged items were properly cleared from the sub-ledger and ultimately accounts payable. This material weakness resulted in a restatement of previously reported results related to periods prior to December 31, 2020. Additionally, this material weakness could result in a misstatement of accounts and disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
Material weakness related to the application of percentage-of-completion (“POC”) accounting:
We did not design or maintain effective controls over the completeness, accuracy, occurrence or determination of revenue recognized under the percentage-of-completion input method for our project-based businesses. Specifically, controls were not designed or maintained to ensure accuracy of the costs-to-date and estimates of the cost-to-complete for certain project-based contracts. In addition, clerical errors were noted in the determination of revenue recognized under the POC method. This material weakness resulted in immaterial audit adjustments related to revenue and related contract assets and liabilities during the year ended December 31, 2021. Additionally, this material weakness could result in a misstatement of accounts and disclosures
that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
REMEDIATION PLAN FOR MATERIAL WEAKNESSES
To date we have implemented several process changes to limit the accumulation and aging of unmatched items. We continue to enhance policies and systems to timely clear discrepancies and prevent an accumulation of balances. Additionally, management is currently in the process of developing and implementing changes as a part of a comprehensive remediation plan to address the material weakness related to the application of POC accounting. We believe the remediation activities will extend through the remainder of fiscal year 2022.
Changes in Internal Control Over Financial Reporting
Except
as described above, there were no changes in internal control over financial reporting identified in the evaluation for the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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 of these lawsuits, 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.
ITEM 1A. RISK FACTORS.
There have been no material changes to the risk factors as previously disclosed in “Part I. Item 1A. Risk Factors” in our annual report on Form 10-K for the year end December
31, 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Recent Sales of Unregistered Securities
DXP Enterprises, Inc. issued 208,855 unregistered shares of DXP Enterprises, Inc.’s common stock as part of the consideration for the May 2, 2022 acquisition of Cisco. The unregistered shares were issued to the sellers of Cisco.
DXP Enterprises, Inc. issued 18,263 unregistered shares of DXP Enterprises, Inc.’s common stock as part of the consideration for the March
1, 2022 acquisition of Drydon. The unregistered shares were issued to the sellers of Drydon.
DXP Enterprises, Inc. issued 3,581 unregistered shares of DXP Enterprises, Inc.’s common stock as part of the consideration for the March 1, 2022 acquisition of Burlingame. The unregistered shares were issued to the sole seller of Burlingame.
We relied on Section 4(a)(2) of the Securities Exchange Act as a basis for exemption from registration. All issuances were as a result of private negotiation, and not pursuant to public solicitation. In addition, we believe the shares were issued to “accredited investors” as defined by Rule 501 of the Securities Act.
Issuer Purchases of Equity Securities
A
summary of our purchases of DXP Enterprises, Inc. common stock during the second quarter of fiscal year 2022 is as
follows:
Total Number of Shares Purchased (1)
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
Maximum
Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) (2)
Apr 1 - Apr 30
2,755
$
27.07
—
$
49,982
May 1 - May 31
2,236
25.50
—
49,982
Jun
1 - Jun 30
39
28.07
—
49,982
Total
5,030
—
49,982
(1)
There
were 5,030 shares transferred from employees in satisfaction of minimum statutory tax withholding obligations upon the vesting of restricted stock during three months ended June 30, 2022.
(2)
On May 12, 2021, the Company announced the Share Repurchase Program pursuant to which we may repurchase up to $85.0 million or 1.5 million shares of the Company's outstanding common stock over the next 24 months. As of June 30, 2022, approximately $50 million or approximately 256 thousand shares remained available
under the $85.0 million Share Repurchase Program.
Exhibits designated by the symbol * are filed or furnished with this Quarterly Report on Form 10-Q. All exhibits not so designated are incorporated by reference to a prior filing with the Commission
as indicated.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
