Q2 2023 DXP Enterprises Inc Earnings Call
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Okay.
Yeah.
Yeah.
Good morning, ladies and gentlemen, thank you for standing by my name is Eric and I will be the conference operator today.
This time I would like to welcome everyone to the DXP Enterprises, Inc.
2023 second quarter earnings conference call all lines have been placed on mute to prevent any background noise. After the speakers'.
Remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press.
Star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star. One again, thank you and now I'll turn the call over to <unk> CFO .
Thank you Erica and thank you to everyone for joining US today. This is Cathy and welcome to Dxp's Q2, 2000, 2023 conference call to discuss our results for the second quarter ending June 32023.
Joining me today is our chairman and CEO David Little.
Before we get started I want to remind you that today's call is being webcast and recorded and includes forward looking statements actual results may differ materially from those contemplated by these forward looking statements.
And of the many factors that we believe may have a material effect on our business on an ongoing basis are contained in our SEC filings. However, DXP assumes no obligation to update that information as a result of new information or future events.
During this call we may present, both GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures is included in our earnings press release, the press release and accompanying Investor presentation are now available on our website at IR <unk> DXP Dot com.
I will now turn the call over to David Little our chairman and CEO to provide his thoughts and a summary of our second quarter performance and financial results.
Good morning, and thank you Ken Thanks to everyone for joining us today on our fiscal 2023 second quarter Conference call. We are pleased to see end market demand in Dxp's performance continued through Q2 and remain at record levels through the first half of 2023.
This allows us to achieve another quarter of both solid sales growth and 10% EBITDA margins overall, we had a great second quarter and strong first half of 2023, we're establishing new highs for DXP and look forward to the second half of 2023 the <unk>.
First half of 2023 highlight solid execution and continued positive demand trends supported by our ability to grow organically and navigate the dynamic supply chain and pricing environment. We continue to execute our acquisition strategy to continue to grow our DXP water.
Wastewater platform, adding Florida valve and raw materials during the quarter, we continued to execute on our goals to diversify.
DXP business, while maintaining our commitment to foundational end markets like energy that have been and will always be a part of DXP. This is dxp's second quarter of adjusted EBITDA margins in excess of 10%, which is great to see and we look forward to maintaining.
This profitability momentum.
This speaks to our relentless drive.
We have to center our strategy around our customers remain customer driven experts, while creating a win win for all our stakeholders. We remain highly focused on providing the expertise our customers have come to expect from DXP, providing more efficient solutions.
Reduce costs and achieving their ESG objectives.
This consistent approach has fueled our financial results.
Second quarter, adjusted EBITDA of $45 3 million and diluted earnings per share of $1.06 was supported by year over year sales growth of 16, 4%.
Thanks to our efforts of all our DXP people across the company, we continue to grow and further our positive momentum driving further operational improvements while performing for our customers. Our key end markets continue to perform for DXP and potentially have secular.
Trends that we are just beginning to see including energy power chemicals and aerospace.
I personally want to thank all our DXP stakeholders in particular, all our Dx people for their determination and hard work as we continue to grow and improve the business and achieved new sales size for our business as we move into the second half of the year, we remain confident that our well balanced business strong.
Balance sheet exceptional teams improved capabilities and robust acquisition pipeline position us well to navigate the current environment and achieve continued success.
We'll begin today with some perspective on our second quarter and thoughts on the remainder of 2023.
We will then take you through the key financial results.
After my remarks.
After his prepared comments, we will open for Q&A.
Again, let me thank our DXP stakeholders in particular, our Dx people for their continued efforts adaptability as we grow and evolve DXP into a more diversified and less cyclical business.
Total DXP sales for Q2 increased 16, 4% year over year, and 1% sequentially or $428 million or average of $6 $8 million per business day for the second quarter.
Thank you to the 2000 and 757 Dx people for your hard work and dedication.
In terms of Q2 financial results service centers led the way growing sales 18, 85% year over year, followed by supply chain services growing sales 12, two 9% and then innovative pumping solutions growing sales 978% year.
<unk> and.
In terms of service centers, the diversity of end markets and MRO nature within service centers allowed us to continue to remain resilient and continue to experience consistent topline growth.
Additionally, our Cisco acquisition continues to perform as we closed out the physical year.
Cisco being with DXP.
For my regional perspective.
Hey majority of our regions continue to experience year over year growth, including the Rocky Mountains, Southeast and Texas Gulf Coast. We continue to expect that our end markets will remain constructive over the foreseeable future as it pertains to energy, we believe we could be.
In the early stages of an up cycle supported by energy transition, which has been consistent with our recent commentary over the last three quarters.
Supply chain services continues to experience year over year due to the addition of a new diversified chemical customer during Q2 and Q3 of last year as we move into Q3, we will look for new customer.
Additions as well as continued to manage curing products and managing inflation.
But both year over year and sequential growth will.
Flatten out until we start ramping new customers.
Said demand for FCS services is increasing because of the proven technology and efficiencies they perform for all of their industrial customers.
But the sales cycle can be protracted and we will look to our SCS leaders to add new customers as we move into 2024.
In terms of Ips or innovative pumping solutions, our Q2 average Ips backlog continues to stay ahead of the physical 2022 average. Additionally, our year to date average for the first time started to exceed our long term average our Ips backlog growing.
Back to 2015.
What this indicates is that we were continue to get bookings as we mentioned earlier and we are likely in the front end of a good cycle only energy related project work that we look forward to as we move through 2023.
As we maintain growth our main focus women in Ips will be managing.
Demand levels, we have.
Finding opportunities in all markets, such as energy, Biofuels, food and beverage and water and wastewater and pricing.
Appropriately given the supply chain dynamics, and ebbs and flows of inflation.
Dxp's overall gross profit margins for the quarter were 38% and sequentially 133 basis point improvement over Q1, and 245 basis point improvement over Q2 of last year, a special thanks to our DXP.
People, who have stayed on top of supplier product increases labor costs and overall efficiencies.
Overall DXP produced adjusted EBITDA of $45 3 million and adjusted EBITDA as a percent of sales of 10, 6%, which reflects the operating leverage we expect to get was significant sales growth.
This also marks our second sequential quarter of 10% plus EBITDA margins and we will look for this to continue as we move through the second half of 2023.
Regarding capital allocation, we continue to make investments to fuel growth and diversify DXP through acquisitions, while opportunistically repurchasing shares buyback.
By balancing these two approaches are pursuing both we are driving long term value for our customers.
Excuse me to shareholders, we're continuing to return value to our shareholders through our 85 million share repurchase program and during the quarter, we purchased 749000 shares.
Turning to $23 $95 7 million.
Let me conclude my remarks by saying that I am encouraged by our continued sequential improvement in sales and profitability. We continue to make progress on growth strategies and our commitment to customers is stronger than ever.
We're driving growth and improvements at DXP, and we look forward to navigating and working through the remainder of physical 2023.
Finally, I would like to thank our DXP people for achieving our goal. The 10 10, and 10 again and we aim to keep this streak alive Q2 was another great quarter as we continue to have a successful year in 2023.
With that I will now turn it back over to Ken and he will review the financials in more detail.
Thank you David and thank you to everyone for joining us for a review of our second quarter 2023 financial results. The first half of 2023 continues to highlight our strong year over year sales performance and two quarters of 10% plus adjusted EBITDA margins. We are excited to report these results.
And we look forward to the second half of 2023, specifically Q2 financial performance reflects our 11th quarter of sequential sales increases and another record high sales watermark first for DXP.
<unk> continues to successfully navigate through the market and has been able to execute and create value for all our stakeholders. We have been successful in transforming and diversifying DXP, but we still have progress to make.
As it pertains to our second quarter Q2 takeaways are as follows strong organic sales growth and contribution from acquisitions continued impacts from inflation or price increases compared to a year ago, albeit at a slower pace.
<unk> record service center performance marked by gross margin strength and stability.
Notable year over year and sequential growth in Ips with a positive outlook in terms of our backlog in energy activity strong sales increases within SCS driven by the addition of a large diversified chemical customer compared to a year ago, Although plateau during Q2, consistent operating leverage leading to sustain.
Good EBITDA margins and significant capital return to shareholders through our share repurchase program.
Total sales for the second quarter increased 16, 4% year over year, and <unk>, 9% sequentially to a record $428 million.
Acquisitions that have been with DXP for less than a year contributed $7 3 million in sales during the quarter.
Average daily sales for the second quarter were $6 8 million per day versus $6 6 million per day in Q1, 2023, and $5 8 million per day in Q2 2022, adjusting for acquisitions average daily sales were $6 7 million per day for the second quarter.
That said the average daily sales trends during the quarter went from 665 million per day in April to $6 9 million per day in June , reflecting a typical quarter and push as we closed out the second quarter.
In terms of our business segments service centers grew 18, 9% year over year. This was followed by supply chain services growing 12, 3% year over year and innovative pumping solutions growing sales nine 8% year over year.
Excluding acquisitions service centers grew $18 eight 5% of our sales increased $47 3 million innovative pumping solutions sales increased $9, seven 8% or sales increased $5 $65 million.
In terms of our service centers regions within the service Center business segment, which experienced notable sales growth year over year includes the Ohio River Valley, North Rockies, Texas Gulf Coast, and the southeast key.
Key products and end markets driving the sales performance include air compressors rotating equipment, and general industrial chemical food and beverage transportation and energy.
Supply chain services performance continues to reflect the impact of the addition of a large diversified chemical customer that we added in Q2 of last year and is fully ramped as of Q2. This year. This customer contributed $15 9 million in sales during the quarter. Other notable gains from from an end market perspective within SCS.
<unk> include growth within our energy and food and beverage customers compared to a year ago.
In terms of innovative pumping solutions, we continue to experience increases in the energy related backlog, our Q2 energy related average backlog grew six 5% over our Q1 average backlog, which is a notable uptick compared to Q1 of this year and continues to be ahead of our 2016 and 2017.
Average backlog and now is only down one 5% when comparing to the 2015 average backlog. The conclusion continues to remain that we're training meaningfully above 2016, and 2017 sales levels and we are moving towards 2015 levels based upon where our backlog stands today we have.
Been experiencing strong organic sales growth within Ips as we mentioned in Q1, we expect that to continue throughout 2023.
Additionally, we are also continuing to find opportunities in other markets as David mentioned, including Biofuels hydrogen.
Carbon capture and sequestration versus our traditional oil and gas, but we expect energy to contribute meaningfully going forward.
Turning to our gross margins Dxp's total gross margins were 38% a 245 basis point improvement over Q2, 2000 22022 excuse me. This improvement was across all of our business segments with with Ips showing the greatest improvement with margins, improving 401 481 basis points on a year over year.
<unk> basis.
That said from a segment mix sales contribution service centers contributed 69, 7% supply chain services 15, 5% and innovative pumping solution was 14 was 14, 8% compared to last year SCS. It passes sales mix contribution was higher at 16%, which impacted dxp's margins in <unk>.
Q2 of 2022.
In terms of operating income combined all three business segments increased 143 basis points or $13 $7 million year over year business segment operating income versus Q2 2022.
This was primarily driven by improvements in operating income margins within service centers and Ips.
Service Center operating income margins improved 190 basis points and Ips operating income margins improved 90, 594 basis points excuse me on a Q2 comparative basis year over year. The improvement in service centers reflects the impact of acquisitions at a higher relative operating income margin total DXP operating income.
Increased 17 basis points versus Q2, 2022% to $37 5 million.
Our SG&A for the quarter increased $16 million from Q2, 2022% to $94 4 million. The increase reflects the growth in the business and associated incentive compensation as well as DXP investing in its people through merit and pay.
Pay raises as well as increased head count SG&A as a percentage of sales increased 75 basis points year over year to 22.
1% of sales the increase primary reflects the impact of acquisitions, plus a 70 basis point uptick from Q1 on total SG&A, we still anticipate that DXP will benefit from the leverage inherent in the business, despite increasing operating dollars supporting our growth cost inflation and the impact of acquisitions.
Turning to EBITDA Q2, 2023, adjusted EBITDA was a record $45 3 million adjusted EBITDA margins were 10, 6%. This is our second quarter of sequential adjusted EBITDA margins in excess of 10% and we look for this to continue.
Year over year, adjusted EBITDA margins increased 264 basis points or $12 7 million.
This reflects the fixed costs SG&A leverage we experienced as we grow sales. This translated into two five times operating leverage in terms of our EPS or net income for Q2 was $19 million or earnings per diluted share for Q2, 2023 was $1 six per share versus <unk> 74 per share last year.
Of note, we returned $25 1 million to shareholders through the share repurchase during Q2.
Turning to the balance sheet and cash flow in terms of working capital our working capital increased $22 4 million from December and $15 8 million from March to $299 $4 million as a percent of last 12 months' sales. This amounted to 18, 2%. We're still at a point, where we are in line with our historical Ann.
Average of ranges in terms of investing in working capital, but as discussed in Q3 of last year. This has begun to move off our Q3 2022 high of 19, 9% of last 12 months' sales as we have onboard in some of our recent acquisitions for a full 12 months, we do anticipate further acquisitions, so as we move into the <unk>.
Second half of 2023 this could move upwards.
In terms of cash we had $15 $5 million in cash on the balance sheet as of June 30.
This is a decrease of $30 6 million compared to the end of Q4 and $42 7 million. Since March. This reflects the purchases of two acquisitions, Florida valve and rare materials and share repurchases, which we will touch in a little more detail later on in my comments.
In terms of Capex capex in the second quarter was $1 8 million or a decrease of $2 million compared to Q1 2023. We are still ahead of our fiscal year 2022 levels as we reinvested some of our facilities and equipment on behalf of our employees as we move forward. We will continue to invest in the business as we focus on growth.
Turning to turning to free cash flow free cash flow through Q2, our year to date was a positive $18 4 million, which reflects a minus $4 2 million during the second quarter. This reflects significant investments in project work along with a reduction in payable days that said, while we continue to make improvements in our free cash flow when we are growing DXP.
Significant investments in inventory and project work throughout the year and we have experienced significant step ups since Q4 of last year.
Return on invested capital ROIC at the end of the second quarter was 32% and continues to be above our cost of capital and is reflecting our improved profitability levels as of June 30, our fixed charge coverage ratio was 273 to one and our secured leverage ratio was 253 to one with a covenant EBITDA.
The last 12 months of $161 9 million total debt outstanding.
On June 30 was $425 $9 million in terms of liquidity as of the quarter. We were undrawn on our ABL with $2 7 million in letters of credit outstanding with $132 3 million of availability and liquidity of $147 8 million, including Dxp's $15 $5 million in cash on the balance sheet.
In terms of acquisitions, we closed on two acquisitions during the quarter Reardon materials.
And Florida valve, we are excited to have them reporting with us for the second quarter of 2023, welcome to DXP, Florida valve and return both provide leading platforms within the municipal and industrial water and wastewater industries.
<unk> acquisition pipeline continues to grow and the market continues to present compelling opportunities. Our acquisition strategy has created significant value for DXP enhancing our end markets margins in dxp's cash flow profile looking forward. We expect this to continue through 2023, and we look forward to Q2.
Two closing a minimum of two to four acquisitions during the second half of 2023.
Updating our thoughts on capital allocation, our primary goal still remains to invest in our business, including the execution of our acquisition strategy. We are also committed to maintaining a conservative balance sheet as demonstrated by a target leverage ratio of three five times or less to the extent, we have excess capital after achieving these objectives the share repurchase program will provide us the mechanism.
To return capital to our shareholders during the quarter as previously mentioned, we repurchased $25 1 million and year to date $34 2 million in DXP stock or a total of 749000 shares in Q2, and $1 1 million shares year to date as we move into the second half of the year, we remain confident that our well balanced business.
This strong balance sheet exceptional DXP people growing capabilities and strong acquisition pipeline position us well to navigate the current environment and chief continued success.
<unk> end market mix and geographic coverage offer us multiple avenues to grow and create value for our customers and suppliers, while providing an important resiliency and unpredictable markets. In summary, we are pleased with our progress at the halfway Mark and we look forward to finishing 2023 strong as we approach Q3 and Q4.
I'll now turn the call over for questions.
Okay.
I would like to remind everyone in order to ask a question press star.
And the number one on your telephone keypad.
We will pause for just a moment.
You in April .
Yeah.
Okay.
Our first question comes from the line of Tommy Moll from Stephens Tommy.
Tony go ahead.
Good morning, and thank you for taking my questions.
Good morning, Tommy.
I wanted to start on some of the average daily sales insight you provided.
First just want to make sure I heard correctly. So it's $6 8 million reported that would be six 7%, excluding the M&A impact did I hear that correctly.
Yes, that's correct Tommy.
And then Kent you provided some of the monthly insight can you just run through the month again, and where those are on an as reported basis or excluding the M&A as well.
Okay. Yeah, just to answer that latter question Tommy that includes acquisitions, but what I'll do is I'll I'll walk you through the trend on the quarter and give you a flash.
A draft Flashboard July so.
April was 665.
May six five June 691.
And then July 6.57.
Thank you that's helpful.
Yes, and so our year to date average I'd just add a little further insight there Tommy our year to date averages averaging about six six.
And so hopefully that gives you a little bit of insight to kind of the trends in DXP.
Yes.
And then the $428 million you reported for the quarter I think it was the 11.
Consecutive sequential sales increase.
Based on that July trend in and everything you know today would your best guess be that.
Q3 could be up again sequentially from that 428 or.
Is there another factor you'd point us to where it flat or even a down sequential might be more realistic at this point.
Okay.
I'll take that one Tommy.
The.
Yeah.
Yes, we want to keep our streak alive.
And.
And we're working hard we have a lot of growth strategies to do so even though.
I think there's no question that the fed is using interest rates the slow the economy down in and we see that in certain markets.
And then and then we see growth in certain markets. So.
Kind of it kind of depends on the mix of all that but but aerospace and energy.
And so certainly water and wastewater and food and beverage those are those are markets that are.
That are growing for us and so.
We.
We're working really really hard to.
I guess over overcome some of the other markets that are slowing down a little bit and so.
Thank you.
You put it all together.
Our goal in <unk>.
Optimism is that we will we will keep the streak alive, even though.
I don't I don't consider.
Yeah.
A small percentage of growth to be a negative.
If we do as an example, I think if we do 1% growth in the third quarter and will then that'll be a 12% growth year over year, and so we'd certainly be happy with that.
Fair enough, yeah, Tommy and Tommy.
Tom the only thing I would add to it is.
You asked at the front end is it just the sales per business day is.
Our pipeline acquisition pipeline still remains in place and so if we get one or two done in the quarter just dependent upon the timing.
We could that would fit with David's comments and those are always additive but.
If that gives you some more insight.
Yeah. That's helpful. Thank you on margins second quarter in a row above 10% for EBITDA.
Peeling back the layers.
You got a pretty big tailwind on the gross margins just under 31% for the quarter, which is the highest in a long time.
I wondered if we could.
Talk to the gross margin performance.
What can you tell us about the price cost dynamic and the inflationary cycle and then.
At the same time is there any M&A or mix impact worth calling out as well on that gross margin performance.
Yes sure.
There is.
Certainly.
Our goal is to do to do 30, so to exceed that slightly is.
A real plus for us.
We're certainly happy to get that and then when we look at what makes that that happened.
We do go to mix.
Our.
Are certain.
Our businesses are higher gross profit oriented than others. As an example supply chain services has a very low growth is like us.
20%, but their SG&A is 10% so they still make a 10%.
Our greater well slightly below that.
Operating income margin, but but on EBITDA.
Jen.
Tim So they contribute and of course their investment on working capitals little.
Lot of inventory and stuff like that the customer keeps all of that so so we're happy with the returns we get with supply chain services I don't want to mislead anybody about that because we're certainly very happy about it.
But it does if thats a bigger portion of what we're doing going forward will then gross margins will come down because because they operate on very low gross margins.
But very low expenses also.
And then other water and wastewater has high gross profit margins.
But because they have this is a long explanation, but I'm going to give it to you I think it would be helpful.
They have a lot of jobs that they do on commissions and so actually in that sense. Their gross profit margin on those types of jobs is 100%.
So that is helpful. Now they do they do an awful lot of bar resale too and those those margins are healthy also.
Innovative pumping solutions.
Kind of a three bid and a buy you do a big project million dollar projects and so they get into competitive situations. So theyre not.
Their margins aren't as low as supply chain services, but they are lower than the service center.
Margins are so again, the more that grows as a percentage of our MRO.
Service Center business will then then that can pull back on margins also but.
But that's one of them.
What I'm talking about is there is a blend of margins and of course, the blend works out to.
The 30, plus or gold's, 30% overall.
That seems to be achievable and we.
We don't we don't see anything there is no one time anything out there or anything.
And a significance that would drive that.
Let down besides mix.
And some products sometimes so.
I'm very very pleased with our people's ability to pass on.
Inflation and supplier cost.
And.
Labor cost and et cetera. So.
We're.
We're pleased with those results and we.
We tend to think that.
Sure.
They're going to hang around there whether it's.
$29 five or <unk>.
35.
No difference to me really I mean, it makes a difference in this.
Is better but.
But I'd be happy with either one of those numbers.
I wanted to talk about M&A in depth before we hit that topic.
What's the address the oil and gas end market dynamics, I mean, youre looking at crude back into the mid eighties.
At the same time, the rig count has drifted down this year.
So what observations would you have for us about the underlying trends there.
So.
Ah study that pretty hard.
And so there is.
Here's what I know of course, there's a lot I don't know but.
But here's what I know I know.
The drilling we do nowadays.
As with lateral lines going from a mile to two miles at the efficiencies of each well drilled is much greater.
So we can have less rigs and still be producing.
More oil.
So or gas.
So this is on the drilling side and of course, we're not tied to drilling work hard we are tied to production.
So that.
As.
Is kind of.
One factor the other factor is as that.
We started off with.
9000 docs.
Uncompleted wells and that's down to.
4000, something.
Not giving you exact numbers, so don't hold me to that but.
In that range and so that's also.
Not needing new drilling to produce more production. So that's that's helpful to.
That said.
And then the last part of the equation is the oil and gas is the leading resource.
So they have to produce more to just keep even and so we're kind of.
At the rate we're at right now today, we're kind of staying even spin.
11 nine.
12, <unk> three so it's kind of been in that range, probably $12 million 2 million barrels a day.
As we speak so.
That's kind of how all that works.
It's good for us.
In terms of.
Kind of midstream the equipment, that's on the well side the gathering system et cetera. So so we see activity in that where we play is being very very strong and then when we mentioned energy we have to talk.
<unk>.
Other sources of energy and so we're plan in those markets. Likewise, so we're we're doing hydrogen projects we're doing.
Corn to ethanol, we're playing in a lot of of the.
The other markets that are designed around around energy, even the service and repair windmills and things like that but we're not in solar panels.
And when it certainly don't manufacturer.
Wind turbines, but we.
But we do work on them so.
I think when we think of energy, we think of this balance between.
That we're going to renewable fuels.
And we're playing in that and then and then we will never quite get it right. So may not be enough oil and gas that renewable can take over so when that happens then oil and gas prices are going to go up and then everybody will get dynamic around that so.
It's a move in ball.
So what I am not here thinking I know everything is if I did.
Really make a lot of money.
But.
I don't have a perfect answer but those are some of the factors that we're looking at in <unk>.
They are all pointing to the fact that we think that that renewables and oil and gas.
Both needed to do more to serve the world with energy and so we think that the.
The coming year or years is going to be a strong market.
Moving on to M&A I think I heard you guys mentioned.
Something in the in the realm of two to four deals.
You hope to close by the end of the year.
Any insight you can give us on what that pipeline looks like.
Can tuck ins or maybe something larger or.
Whatever insight you can provide though I recognize it's delicate given these are still in the pipeline, but anything you can provide is helpful.
Yes.
Just some high level comments, there Tommy one.
I like to always signal that hey.
<unk>.
The M&A markets seem to be strong and theres theres plenty of opportunities there for DXP.
Secondly, and more specifically to our pipeline.
Two to four.
They continue to play on our major themes of water wastewater.
Rotating equipment broadly speaking as well just as a product category.
And then more importantly.
<unk>.
Valuations are in line with our expectations and so.
<unk>.
No.
For us getting the two to four seems more than reasonable.
If they are in the water wastewater space, obviously, they are accretive to our margins both gross margins as well as EBITDA margins.
And if they're in the rotating equipment space by the way they are typically accretive to our gross margins and our EBITDA margins and so.
We're excited point being about our pipeline and what we see there spending a lot of time be more selective to be candid.
Because of the fullness of the pipeline and so.
We feel good.
Some of them are more tuck in in terms of size and then others.
In the aggregate could be closer to around our average acquisition size. So our average acquisition size being anywhere between 25% to $35 million in sales from acquisition standpoint. So.
We will see which ones get across the finish line before year end, but we also feel good about going into 2024% at Buchanan. So.
You mentioned water wastewater a couple of times there Ken.
This is the last theme I wanted to make sure we hit on today, but.
It's clearly been an emphasis in terms of inorganic capital allocation and the deals you've done in the last couple of years.
You mentioned that it tends to be margin accretive.
Yes, which I presume is one of the reasons you are attracted to it but that.
But maybe even at a higher level.
Refresh us on the strategy for building out that platform, what you like about the structure of that market and then if you look back at the progress you've made in the platform you have today.
How would you characterize it in terms of scale.
And how.
How much more scale do you hope to add going forward. Thank you, yes, and maybe I'll just hit that and then I'll, let David chime in on the Big picture strategy around water wastewater, but.
<unk>.
We've always viewed it as a platform that we can we can scale up between $350 million to $500 million at least platform and so just to give you a sense of scale today, we're a little bit north of $100 million.
And then.
What I would also say and then I'll, let let this be a segue to David as we've always played in the water wastewater platform. It's just something we didn't necessarily.
Shortly make the intentional decision as we are in today's market.
Deciding to grow via acquisition and so.
And I'll use that just as a segue to David to explain to you why but.
But we really like it.
As you picked up on it is accretive to our margins on a variety of fronts David.
So specifically.
It's not a.
It's not really a cyclical business.
People.
Go to the bathroom bill stuff that they do and so we need water Wendy clean water, we need to dispose of waste we need to do all these things in.
And then and so the market and the infrastructure, that's gotten kind of old.
And there is a lot of repair and replacement activity, that's going on and so that that's really driving this particular part of the industry.
Upward so.
<unk>.
Other parts to explain it correctly to as Kent mentioned it but.
Yeah.
We're a pump where a pump company, we represent pumps that go into industrial.
And utility type businesses, so so being pumped people, we understand the technical side the pumps, we understand the repair and service of.
Humps so water.
We've played in that we have.
And so we're trying to so we understand that aspect of the product.
When we look at adding things to that product we look at.
Not only <unk>.
More repair, but we also look at some valves that are specific to that industry. We look at.
Automation.
The specific to that.
Industry and so there's kind of we're building this platform that takes these five legs.
Legs to the stool sort of speak and Thats the part about the.
The repair the automation and then the last one is a little new for us, but it's process equipment and so it's it's equipment. So we're certainly.
Used to that but it's.
It also has some chemical aspects to it and stuff like that so so all of those.
Other three legs valves and process equipment and automation are a little newer to us and so that's a great growth opportunity to the people that were in municipal but they were just doing pumps and so it's this is Ben.
Really exciting.
Tom and growth strategy that not only are we acquiring piece.
People across the United States that are that are in this business, but we're actually bringing things to them to help them grow their business, where they might not have been a great growth company in the past so the market's better.
We bring to them.
Is is better and.
Then the customer finally, he he like somebody that can.
Bring more than just one offering to him. So the fact that you can bring pumps. So you can bring the process equipment and then you can service that you can install it et cetera.
It's very exciting.
We'll look forward to continuing to follow the progress there and for todays purposes. That's all I had so I'll turn it back.
Okay.
Thank you Tom.
I'd like to remind everyone.
Kevin.
It's impressive.
Press Star and the number one on your telephone keypad.
Yeah.
Eric I think Thats I think thats all the questions today.
Yes.
Yes, just giving your moment ladies.
Ladies and gentlemen, thank you that concludes our call today.
Thank you for joining us.
Thank you. Thank you.
Okay.
Okay.
Okay.
Okay.