Q3 2023 DXP Enterprises Inc Earnings Call

Good morning, My name is Krista and I'll be your conference operator today at this time I would like to welcome everyone to the DXP Enterprises third 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'd like to ask a question.

That time, please press star followed by the number one on your telephone keypad. Thank you I will now turn the conference over to Kent E Chief Financial Officer, Kent, You may begin.

Thank you Christina this.

This is Kate and welcome to Dxp's Q3, 2023 conference call to discuss our results for the third quarter ended September 32020.

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 it includes forward looking statements.

Actual results may differ materially from those contemplated by these forward looking statements.

A detailed discussion 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.

Press release, and an accompanying investor presentation are now available on our website at IR Dot 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 third quarter performance and financial results David.

Thanks, Ken Thanks to everyone.

Sure.

2023 third quarter conference call.

We will thank you Kent will take you through the key financial details for our remarks and from our remarks and after our prepared comments, we will open for Q&A.

Privilege to share Dxp's third quarter results with you on behalf of over 2799 Dx people.

Congratulations to all our stakeholders and a special thank you to our Dx people you can trust.

We were pleased to see end market demand and Dxp's performance continue through Q3 and remain at record levels as we move through the second half of 2023.

This allows us to achieve another quarter of both solid sales growth and 10% plus EBITDA margins were.

We are pleased to announce strong third quarter results with sales operating income and earnings per share all up over the prior year. This is a great way to start the second half of physical 2023, we continue to deal with the macro uncertainty and the impacts of inflation and elevated interest rates, but we remain.

<unk> focused on serving our customers providing products and services that help them save money consolidate their MRO spend manage inventory provide solutions to solve their evolving needs.

Being customer driven and growing sales profitably is our goal.

We continue to focus on driving organic and acquisition growth, increasing gross profit margins and increasing productivity.

<unk> has resulted in the physical 2022, and 'twenty, three topline growth and bottom line organic and acquisition growth.

Said, our growth has not been as large as we would like so we expect to add some acquisitions to our results as we close out fiscal year 2023, and going into physical year 2024.

We continue to be excited about the future and delivering differentiated customer experiences, creating an engaging winning culture for dx people and investing in our business to strengthen our core capabilities and drive long term growth.

Year to date through September 30, our total sales are up 18, 3% and operating income is up 46, 9% last 12 months sales adjusted EBITDA were 168 billion and 100 $164 million.

Respectively, and EBITDA margins for margin of nine 8%.

Moving to our third quarter results total DXP revenue of $419 2 million for the third quarter of 2023 was an eight 3% increase over year over year with adjusted EBITDA of $44 million for the third quarter.

In terms of Q3 financial results server service centers led the way growing sales 13, 2% year over year followed by.

Innovative pumping solutions, essentially performing flat at $59 million in sales and supply chain services declined three 5% or $2 4 million to $65 8 million year over year.

In terms of service centers and the diversity of our end markets and our MRO nature within service centers allows us to continue to remain resilient and continue to experience consistent topline year over year growth from a regional perspective, a majority of our regions continue to experience year over year.

Our growth, including the North Rockies, Northern Central Alaska, and Texas Gulf Coast. Additionally, we continue to see strength in our air compressor product Division. We continue to expect that our end markets will remain constructive over the near future. It is for is it for.

Haynes two energy, we believe that we could be in the early stages of an up cycle supporting.

Supported by the energy transition, which has been consistent with our commentary over the last three quarters.

In terms of Ips innovative pumping solutions, our Q3 average Ips backlog continues to stay ahead of the physical 2022 average. Additionally, our year to date average continues to exceed our long term average of Ips going all the way back to 2015.

Yeah.

Which we highlighted.

Occurred for the first time in the second quarter and continues to move into fiscal year 2024.

What this indicates is that we are continue to give bookings and we are as we mentioned earlier, we are likely in the front end of a good cycle on the energy related project work that we look forward to as we move through 2003 and into 'twenty four.

As we maintain growth our main focus within Ips will be managing the demand levels, we have finding opportunities in all markets, such as energy bio fuels food and beverage water and wastewater and pricing appropriately given the supply chain dynamics and ebbs and flows of inflation.

Supply chain services experienced a decline year over year, primarily due to some facility for port closures with our customers as well as streamlining and the efficiencies we brought to our new diversified chemical customer that we added last year. This happens as part of our value proposition.

We do not anticipate any further material saving impact on DXP.

As we move into Q4, we will look for new customer additions as well as continuing to manage the recurring products and managing inflation, both year over year and sequential growth will flatten out until we start ramping new customers.

That said demand for SCS services is increasing because of the proven technology and efficiency they perform for all of our 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.

Dxp's overall gross profit margins for the third quarter were 29, 9%, a 113 basis point improvement over 2002, and down 85 basis points sequentially overall, I am pleased with our gross margins and our steady improvement over the last seven quarters.

SG&A for the third quarter increased $4 6 million versus Q3 of 'twenty, two but esque.

<unk> as a percent of sales declined going from 22% in Q3 of 22 to 21, 4% in Q3 of 'twenty three SG&A continues to reflect our investment in our people and organization and as always it is my privilege to share Dxp's financial results on behalf of.

These DXP people.

Dxp's overall operating income was eight 6% or $35 9 million, which included corporate expense and amortization.

This reflects a 170 basis point improvement in margins over Q3 of 'twenty two.

That being said, we still feel there is opportunity in operations to be more efficient.

Service centers operating income margins were 14, 1% and Ips operating income margins were 18, 9% and supply chain services operating income margin was eight 5% overall DXP produced adjusted EBITDA of $44 million versus 30.

$4 3 million in 2002. This return this turned into a year over year increase of $9 7 million or 28, 3%.

Adjusted EBITDA as a.

Percent of sales was 10, 5% up 164 basis point versus Q3 of 'twenty, two and essentially flat with Q2 of 'twenty three.

I am pleased by our performance in the third quarter, we still have substantial work to do to achieve our goals, but I'm confident that team will continue to execute we are growing sales in excess of market and expect that in the near future. We expect to drive strong SG&A leverage manage working capital and generate free cash.

Cash flow.

If organic growth slows and free cash flow will grow and we will take advantage of the economy to grow profitably through acquisitions.

We have grown sales on a compounded annual growth rate of over 23% since COVID-19 and we have achieved new highs in both sales and profitability and I would like to thank our stakeholders and especially our DXP people.

With that I'll now turn it back over to Kent to review the financials in more detail.

Thank you David and thank you to everyone for joining us for our review of our third quarter 2023 financial results Q3 was a great quarter for DXP and our results are in line with our expectations and reflect the positioning we were anticipating as we prepare to go into fiscal 2024. This quarter reflects our third quarter.

10%, plus adjusted EBITDA margins strong free cash flow generation and meaningful diluted EPS growth. We are excited to report. These results and we look forward to successfully closing out 2023, and starting fiscal 2024, specifically Q3 financial performance reflects our ability to continue to successfully navigate through the <unk>.

Market and.

And create value for all our stakeholders as it pertains to our third quarter Q3 highlights are as follows strong year over year organic sales growth lasting impacts from inflation and price increase as compared to a year ago continued gross margin strength and stability continued year over year and sequential growth in the Ips energy related back.

Log consistent operating leverage leading to sustained adjusted EBITDA margins more notably our third quarter.

10%, plus adjusted EBITDA margins and significant capital return to our shareholders through our share repurchase program.

Total sales for the third quarter increased eight 3% year over year to $419 2 million acquisitions that have been with DXP for less than a year contributed $3 9 million sales during the quarter average daily sales for the third quarter were $6 seven.

7 million per day are essentially flat to Q2 and were up 10% versus Q3 2022 adjusting for acquisitions average daily sales were $6 6 million per day for the third quarter.

That said average daily sales trends during the quarter went from six five to 8 million per day in July to $7 1 million per day in September reflecting a typical quarter and push it was we closed out the third quarter and an uptick from the Q2 'twenty three month of June versus September or $6 169, excuse me million per day versus.

$7 1 million per day in terms of our business segments service centers grew 13, 2% year over year. This was followed by innovative pumping solutions declining, 0.1% or essentially flat year over year and supply chain services declining three 5% year over year in terms of our service centers regions within our service Center business.

Segment, which experienced notable sales growth year over year include the North Rockies, North Central Alaska, and Texas Gulf Coast key products and end markets continue to drive sales performance include air compressors rotating equipment, and chemical general industrial 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 of this year that said supply chain services experienced a decline year over year, primarily due to some facility closures with existing customers as well as the streamlining of inefficiencies.

Got to our new diversified chemical customer that we added last year as David mentioned this happens as a part of our value proposition, meaning we anticipate reducing our customers' absolute spending volume by improving their purchase behaviors and inefficiencies. This customer contributed $16 1 million in sales during the quarter versus $16 5 million a year ago.

As we move into Q4, we will look for new customer additions as well as continuing to manage procuring products and managing inflation, but both year over year and sequential growth were flattened out until we start ramping new customers.

In terms of innovative pumping solutions, we continue to experience increases in the energy related backlog, our Q3 energy related average backlog grew seven 9% over our Q2 average backlog, which continues to be a notable uptick compared to Q1 of this year and continues to be ahead of our 2015 2016 and 2007.

<unk> 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 the first half of 2023, we expect that to continue throughout 2023 and into 2024. Additionally, we are also continuing to find opportunities in other markets.

In terms of our DXP water backlog, we experienced a sequential increase of 28, 2%.

Turning to our gross margins Dxp's total gross margins were $29, 95% 133 basis point improvement over Q3 2022.

This improvement was driven by strength in our Ips business segment, showing the greatest improvement with them with margins improving 430 basis points on a year over year comparative basis. This was followed by a 49 basis point improvement from service centers that said from a segment mixed sales contribution service centers contributed 72% supply chain.

<unk> 15, 7% and innovative pumping solutions was 14, 1% compared to last year Ses's mix contribution was higher at 17, 6%, which impacted margins in Q3 of 2022.

In terms of operating income combined all three business segments increased to 139 basis points in year over year business segment operating income margins or $9 8 million versus Q3 2022. This was driven by improvements in operating income margins across all three business segments Ips operating income margins improved 650.

One basis points, driven by the addition of water and wastewater acquisitions and overall improvement within the energy related Ips business Service Center operating income margins improved 34 basis points on our Q3 comparative basis and year over year operating income margins supply chain services operating income margins improved 67 points.

Six basis points on year over year comparative basis, the improvement in service centers reflects the impact of acquisitions at a higher relative operating income margin total DXP operating income increased 170 basis points versus Q3, 2022% to $35 9 million.

Our SG&A for the quarter increased $4 6 million from Q3 2022 to $89 7 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 raises that we continue to experience.

SG&A as a percentage of sales decreased 57 basis points year over year to 21, 4% of sales, we still anticipate that DXP will benefit from the leverage inherent in the business. Despite increased operating dollars supporting our growth cost inflation and the impacts of acquisitions.

Turning to EBITDA Q3, 2023, adjusted EBITDA was $44 million adjusted EBITDA margins were 10, 5%. This is our third quarter of sequential adjusted EBITDA margins in excess of 10% and we will look for this to continue year over year, adjusted EBITDA margins increased 164 basis points or $9 7 million.

This reflects the fixed costs SG&A leverage we experience as we grow sales. This translated into three four times operate operating leverage during the quarter.

In terms of EPS, our net income for Q3 was $16 2 million or earnings per diluted share for Q3, 23 was <unk> 93 per share versus 71 cents per share last year of note. We've returned $22 6 million to shareholders through our share repurchases during Q3.

Turning to the balance sheet and cash flow.

In terms of working capital our working capital increased $10 4 million from December Andy decreased $11 9 million from June to $287 $5 million as a percentage of sales. This amounted to 17, 1% of last 12 months sales at this point, we have moved in line with our historical averages our range in two.

As of investing in working capital and we have moved off our Q3 2022 high of 19, 9% of last 12 months' sales as we have onboard at some of our recent acquisition for a full 12 months.

We do anticipate further acquisitions, so as we move into fiscal 2024. This could move upwards, albeit we are focused on managing working capital as efficiently as possible as we scale and grow.

In terms of cash we had $27 $2 million in cash on the balance sheet as of September 30th. This is a decrease of $18 9 million compared to the end of Q4 2022, and an increase of $11 6 million. Since June. This reflects the strong cash flow generation, we experienced during the quarter, which we will touch upon later on in my comments.

In terms of Capex capex in the third quarter was $1 $5 million or a decrease of 327000 compared to Q2 2003.

We still are ahead of our fiscal year 2022 levels.

We will continue to reinvest in 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 free cash flow free cash flow through Q3 was a positive $86 7 million, which reflects free cash flow produced $38 3 million during the third quarter. This was driven by an $11 9 million reduction in working capital along with our sustained earnings through the quarter.

Specifically, we lessened the impact from the investments in project work along with a small increase in payable days that said, while we continue to make improvements in our free cash flow when we're growing DXP make significant investments in inventory and project work throughout the year, we have experienced significant step ups since Q4 of last year.

Return on invested capital or ROIC at the end of the third quarter was 34% and continues to be above our cost of capital is reflecting our improved profit profitability levels.

As of September 30, our fixed charge coverage ratio was $2 67 to one and our secured leverage ratio was 236.

Ladies and gentlemen, this is the operator, please standby we are experiencing technical difficulties one moment. Please.

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Operator.

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With regard.

Sure.

Thank you.

With regard.

Hi, Okay, you may now begin.

Okay.

I understand we've got temporary disconnected, so I'll turn back a few paces to when we started discussing our balance sheet. So turning to the balance sheet and cash flow in terms of working capital our working capital increased $10 4 million from December and decreased $11 9 million from June to $287 5 million.

As a percentage of sales this amounted to 71% at this point, we haven't moved in line with our historical averages are ranges in terms of investing in working capital and we moved off our Q3 2022 high of 19, 9% of last 12 months sales as we have onboard at some of our recent acquisitions for full 12 months, we do and.

<unk> further acquisitions, so as we move into fiscal 2024. This could move upwards, albeit we are focused on managing working capital as efficiently as possible as we scale and grow in terms of cash we had $27 2 million in cash on the balance sheet as of September 30.

A decrease of $18 9 million compared to the end of Q4, 2022, and an increase of $11 6 million since June.

This reflects the strong cash flow generation, we experienced during the quarter, which we will touch upon later on in my comments in terms of Capex Capex in the third quarter was $1 $5 million or a decrease of 327000 compared to Q2 'twenty. Three we still are ahead of our fiscal 2022 levels in terms of liquidity as of the quarter.

We were undrawn on our ABL with $2 9 million in letters of credit outstanding with $132 1 million of availability and liquidity of $159 $3 million, including the $27 2 million in cash subsequent to the quarter, we announced that we refinanced and repriced our term loan B, which now has a maturity of October 2030.

We successfully repriced the new term loan b, reducing our borrowing costs by 50 basis points to sofa, plus $4 75 versus sofa, plus 525, while also raising an incremental $125 million in capital to support our acquisition program over the next six to nine months in terms of go forward financial statement impacts in the fourth quarter.

We will write off an estimated $12 4 million in unamortized debt issuance cost and capitalize on new estimated $12 million to $13 million of financing costs pro forma interest is expected to be in the range of $16 million to $17 million per quarter in terms of acquisitions. We closed on one acquisition after the quarter Alliance pumping mechanical service.

And we are excited to have them and they will start reporting with us for the fourth quarter of 2023.

Dxp's acquisition pipeline continues to grow and the market continues to present compelling opportunities looking forward. We expect this to continue through 2023 and 2024.

Yeah.

And we look forward to closing a minimum four to four to five acquisitions by the end of the first quarter of 2024 in terms of capital allocation, we repurchased $22 6 million in the quarter and year to date $56 $2 million or a total of 618000 shares in Q3, and $1 7 million shares year to date of DXP.

Stock in summary, we are pleased with our third quarter performance and we look forward to finishing 2023 strong as we position ourselves for 2020 for now I will turn the call over for questions.

As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

Next question comes from the line of Tommy Moll from Stephens, Inc. Please go ahead.

Good morning, and thank you for taking my questions.

Hey, good morning.

Okay.

David you used the word constructive to describe.

Markets.

I wondered if we could unpack that a little bit and I'm, specifically talking about.

Ex oil and gas so more on the industrial side.

How would you characterize the environment today, just based on any anecdotes you can share and how does it feel like it may have changed over the last quarter.

So Tommy.

Tommy.

Thanks for your question.

That's a good question.

I think best described.

We have an unusual amount of companies that are doing well and we have an unusual amount of companies that aren't doing well I think you have.

People that are being affected by higher interest rates I think you have people that are unaffected by that.

And then of course, the consumer ultimately is is probably the driver of all of that and so.

It's it's interesting that.

It seems to all be balancing out.

Whether aerospace's is up.

And.

Your ex oil and gas, but actually that's kind of been down.

Through most of this year and of course, we think thats going to get better but.

Other industrial are.

The PMI index is saying we're in contraction in metalworking group has been relatively flat most of the year maybe.

Ever so slightly down.

And then on I'll say up and down I'm really not talking about it being drastically up and down I'm just talking about it being up.

Up a little bit and down a little bit. So we don't we're not.

Theres no panicking going on over here, we have we have some very strong.

Growth initiatives forward to be very specific in and they are producing good results.

Because of our new in nature, they don't they don't move the needle a whole bunch.

We do an extra million here in the extra 2 million here and $3 million year, but.

That's.

That's not offsetting that we have some customer that his business was down 10%. So he comes down so.

It's really hard it's really why we're not.

Overly.

Positive or negative I think we don't we're not taken a positive or negative stand on anything.

And we're just.

We're just dealing with well.

And we are dealt with.

Think we're trying to grow the business and I think I'm pretty proud of our DXP people for.

Our goal is always to antenna 10, 10% organic growth and we've we've exceeded that.

And then 10% EBITDA margins in that.

We have exceeded that.

We're picking acquisitions that are.

Have high EBITDA margins, such that as kind of the goal, we're trying to pick acquisitions that actually.

Our small in nature, typically, but but they have some record of growth.

There's a lot of opportunities not paying 10 times for some company. That's for the last five years has had flat growth.

So and then.

We're going to.

We're going to generate.

A lot of cash flow. So that's that's a good thing so I don't know.

Answer a lot of questions.

But back to your point of how about looking at each individual market.

We could go through that but it's just going to be 10 up in.

Slightly up and pin down slightly down and so this is kind of an interesting economy out there.

Yes, well if you roll it all together.

And you look at the $419 million you just reported for the third quarter Whats Your best guess on fourth quarter.

Order above that level below that level about the same.

Good morning, Tommy I'll jump in here, a little bit one thing just to tag onto David just comments about end markets is sequentially $419 million.

I think from you.

From your estimate be considered down I think the one thing we.

We missed there is we had 63 business days.

Q3 versus 64 in Q2, so if I adjust for our sales per business day were essentially flat.

Lapped Q2, which was in line I think with directional comments once again, we typically don't give guidance, but directional comments around.

Our Q2 commentary that said to pull that forward I think in Q4.

We see is there are 61 business day so.

You even go down an additional two so our sales per business day continues to perform as well.

Outline kind of the trend was.

Through the quarter $6 6 million in July $6 3 million in August September was seven one October six four so if you take a blended average and do that by 61 days you can get to kind of.

Our macro our directional comments of where we think the business will perform in Q4 and some of Thats. Just once again function of the number of business days you go into the holiday season et cetera. Some other things going in there that said, we did have an acquisition in the quarter that on a full year basis.

Roughly around $2 million in sales so once again people.

Can do the math.

Cooperating that and so.

Those would be our thoughts about how to think about kind of.

<unk>.

Going forward I don't think we see.

To David's comments, we have a balanced mix of end markets the consumer facing ones, we probably will.

We would be the way I'd summarize it tends to probably see the ones that you have those slightly downs and then in terms of our hardcore true industrial markets to David's points. You have some that are up or down that are offsetting that are having less any impacts from inflation and so net the business is still growing year over year. So.

So.

Kent all the detail with was helpful and just to make sure.

Following correctly Youre 63 business days in the third quarter.

Steps down to 61 in the fourth quarter.

And I think what I heard you say is if we calculate that.

Daily sales rate for the third quarter across the average of the third quarter.

There is no reason that shouldnt look meaningfully different in the fourth quarter did I hear that correctly.

That's directionally correct. Once again, we had an acquisition.

Without being too specific but.

Yes, I mean, thats, how one of the Kpis here at DXP that we monitor that we always talk about obviously on the earnings calls as various implicitly at a very high level of sales per business day.

Okay.

Sure.

And then on the margin side third quarter in a row hitting that double digit target.

And I think I heard you all say you don't see any reason that Shouldnt continue so I would just ask a more open ended question I mean first of all make sure I heard that correctly.

First of all just talk to what's supporting some of that double digit margin performance and where do you think you had medium term.

Yes, I mean at the high level, what starts off really supporting that as our gross margins. If you look at our gross margins over the past year and a half two years. We've we've taken a step up by about 100 to 200 basis points call. It on average so that 29% to 30% gross profit range is the biggest driver and then.

As is inherent in distribution you get you get you get SG&A leverage and so.

And so if you're managing cost correctly, which we worked pretty hard on.

If you get into <unk>, and then you've got the 20% SG&A, which has been one of Davids long term goal is to get to the 10%.

And so we.

<unk> been able to do that part of that is driven by mix. Once again, our water wastewater acquisitions tend to perform at a higher level of gross margin. So it was our air compressors.

And then our base business, we're always pushing our heritage. If you will DXP business to perform in line with those businesses and get to that 30% and we surely have some that do do that and more so.

Those are the levers.

At a high level.

And we have been experienced in that quarter over quarter.

So.

Kent on interest expense.

I just want to make sure I heard everything you said correctly and Theres a couple of layers here. So maybe we will start with the easier one I think what I heard you say is.

Forgetting about Q4 for a minute where there is some noise but that.

Post the refinancing on todays sofa, it's about a $16 million to $17 million a quarter expense line did I interpret that correctly.

Yes, yes, it's a floating rate right. So it's a little bit of a moving target at Tommy but Thats correct. If you just kind of with everything you know today pro forma right in about $16 million to $17 million in interest expense a quarter for the new.

New incremental 125, so okay.

And then <unk>.

<unk>, which will be a little bit trickier, there was a $12 $4 million item $12 million to $13 million item can we just go back over those again.

Yes, essentially you have.

You already you already for lack of better words expense and pay for it but due to the accounting unamortized debt issuance cost that you write off as part of a new facility and a new transaction. So we will write that often flush that through the P&L. If you will in Q4, and then we'll capitalize new $12 million to $13 million worth.

The debt issuance costs associated with the new facility or the new $550 million raised here just recently so.

That's essentially what will go on.

The P&L impacts once again that people will see it as just the write off of the debt issuance costs and then youll start to see obviously that new pro forma interest kick in in Q4. So those are the two things you really see in the P&L.

Okay.

So.

If you think about the consolidated.

Interest expense line for Q4, what does it all add up to.

Well once again.

Also the missing piece, which once again as we do in today's environment, we are managing cash, meaning hey, we.

We do get some interest income on our cash that offsets that $16 million to $17 million.

There is a daily move it there a little bit so.

Net you could get down to $50 five at.

At the lower end of that forecast of interest expenses, what I would tell you just in terms of what's rolling through the P&L.

And that's for Q4 or for the run rate yes.

For the Q4 for Q4.

Once again.

The facility also amortized if you go past Q4 Tommy.

1% per year in terms of principal reduction so youre effectively lowering that interest in that.

And that interest over time, but not to get into details on that math here on the phone, but I think in Q4, what you would expect to see is the 16% to $17 million in it.

Interest expense and then as you go forward every quarter.

The combination of debt amortization and the 1% per year.

Or a quarter percent.

Every quarter plus some interest income associated with the cash on the balance sheet will offset that and so it will peak probably in Q4 Q1, and then it will lessen as we go out.

Okay.

Let's see on a couple of strategic items for you guys M&A I think I heard maybe four to five more deals.

Got soft circled for Q4 Q1.

What can you tell us about that pipeline.

Particularly in terms of.

Size of the deals you are considering at this point.

And what seller expectations look like in this rate and economic environment.

Yes so.

We actually have letters of intent in place. So we're just actively working through due diligence on those and that's why we set a minimum of four to five by the end of Q1 the timing once again the calendar is a little bit tough in this time of the year you have holidays and different things. So we're kind of working through that being sure we're being prudent from a due diligence standpoint, but we anticipating potentially some here.

As we close out the year and obviously.

If we don't hit that timeline, we will close them out in the first quarter. So just to give you. Some color there just in terms of kind of overall expectations from.

Evaluation standpoint, I mean, hey, we still continue to find.

Good deals at good multiples mean in our average purchase multiple has always been seven times or less and so we're still finding those opportunities out there in the marketplace.

<unk>.

The themes in terms of the types of acquisitions.

Water wastewater continues to be a big thing we do have some just industrial kind of I'll call. It rotating equipment product in our repair and services and so those are also one of our themes. That's what alliance pump a mechanical was closer to it did have some water wastewater things there, but also just some general rotating equipment repair type stuff. So.

Those are the themes, we are seeing and so we're kind of excited to work through those.

And we'll be excited to kind of report those when we get those closed.

Last question for me on oil and gas there have been some.

Large transactions announced for some of the players in that industry to consolidate.

And I just wonder from a strategic perspective is there anything that that signals positive or negative.

<unk> you for your business in that end market.

Well I think it's.

Potentially negative.

<unk>.

I think these.

These big companies.

Heather.

Their own budgets their own people doing projects.

We participate in those projects and when you put the two of them together.

Assuming if they're if they're doing it.

And they're just going to.

Move forward with the same total budget.

And then that would be great.

They do it and they're wanting to consolidate and try to become more efficient. We will then I think those those budgets could possibly be the cut and so therefore.

Yes.

They're going to be good activity and of course, it's all about how much of.

We don't get 100% of anybody's budgets.

So still.

We don't feel like that Ips are innovative pumping solution group.

It was pretty positive about our combination of alternative type.

Fuels that are more environmentally friendly.

And the traditional stuff in both of those things are happening as we speak and so in some ways we feel.

They feel like things are continuing to improve for them.

And I feel that way, but specific to the mergers you're talking about.

Do they do they take some budget out of.

Out of play.

Yes.

Well I appreciate all the insight today, that's all I had I can turn it back.

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Okay.