Q4 2023 DXP Enterprises Inc Earnings Call
By 2023 fourth quarter and fiscal year 2023 results conference call. All lines have been please 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 reserve your question again press the star one.
Now I'd like to turn the conference over to <unk> Chief Financial Officer. Please go ahead.
Thank you Ray and thank you everyone for joining US today. This is Kent Yee and welcome to Dxp's Q4, 2023 conference call to discuss our results for the fourth quarter and fiscal year ending December 31, 2023, 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 a detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis.
Basis are contained in our SEC filings. However, DXP assumes no obligation to update that information because 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.
Ladies and gentlemen, thank you for standing by my name is desert Ray and I will be your conference operator today at this time I would like to welcome everyone to the DXP Enterprises 2023, what are there in fiscal year 'twenty 'twenty results conference call. All lines have been please on mute to prevent any background noise.
The press release and an accompanying investor presentation are now available on our website at IR that 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 the fourth quarter and fiscal 2023 performance and financial results.
After the Speakers' remarks, there will be a question and answer session.
Thanks, Kent and thanks to everyone on our 2023 fourth quarter and fiscal 2023 conference call.
Speaker Change: If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
I am pleased to report record full year results for our key financial metrics sales sales per day gross profit margins and adjusted EBITDA margins. These results demonstrate the power of our Dx people.
Speaker Change: If you would like to withdraw your question again press the star one.
Speaker Change: Now I'd like to turn the conference over to Ken <unk> Chief Financial Officer. Please go ahead.
Speaker Change: Thank you Deseret and thank you everyone for joining US today. This is Kent Yee and welcome to Dxp's Q4, 2023 conference call to discuss our results for the fourth quarter and fiscal year ending December 31, 2023, joining me today is our chairman and CEO David Little.
<unk> processes to serve the needs of our customer. They also highlight the benefit of our broad and diverse exposure to different end markets and regions and our disciplined capital allocation strategy. It is my privilege to share Dxp's fourth quarter and physical 2000.
Kent Yee: 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 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.
23 results with you on behalf of over 2837, VX people congratulations to all our stakeholders and a special thanks to our Dx people you can trust.
Kent Yee: Finally, however, DXP assumes no obligation to update that information because 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.
Physical 2023 was another successful year for DXP growing sales 13, 4% to $1 7 billion. We are excited to move into physical 2024, with the momentum and results of 2023.
Kent Yee: The press release and an accompanying investor presentation are now available on our website at IR that DXP E Dot com.
One of our key long term thing themes, winning at Max margins converted into improving gross profit margins by 160 basis points to 31%.
Kent Yee: I'll now turn the call over to David Little our chairman and CEO to provide his thoughts and a summary of the fourth quarter and fiscal 2023 performance and financial results.
We are transitioning our theme.
And to 2024 from winning at Max margins to winning and Max margins, while maximizing operating efficiencies.
David R. Little: Thanks, Ken and thanks to everyone on our 2023 fourth quarter and fiscal 2023 conference call.
I am pleased to report record full year results for our key financial metrics sales sales per day gross profit margins and adjusted EBITDA margins. These results demonstrate the power of our Dx people products and processes to serve the needs of our customers.
And investments.
Physical year 2023 was a record year in terms of sales dollars, achieving a new high sales watermark for DXP. While also achieving these physical year of 10% plus adjusted EBITDA margins we executed.
David R. Little: They also highlight the benefit of our broad and diverse exposure to different end markets and regions and our disciplined capital allocation strategy.
On our constant goal of 10% plus sales growth and 10% EBITDA margins and we will look to maintain that as we enter into physical 2024, and thus focusing on driving operating efficiencies, while still growing the business.
Speaker Change: It is my privilege to share Dxp's fourth quarter, and physical 2023 results with you on behalf of over 2837 Dx people congratulations to all our stakeholders in a special thanks to our Dx people you can trust.
We continue to successfully execute on our end market goals of diversification and scale.
At the end of physical 2023 energy was 25% of our business followed by chemical at 10% and with water and wastewater and food and beverage at 7% each and manufacturing in general industry at 8% and 12% respectively.
Physical 2023 was another successful year for DXP growing sales 13, 4% to $1 7 billion. We are excited to move into physical 'twenty 'twenty four with the momentum and results of 2023.
Speaker Change: One of our key long term thing themes, winning at Max margins converted into improving gross profit margins by 160 basis points to 31%.
In other words DXP has continued to deliver on balancing our risk from an end market perspective, and we see that in our physical 2023 results and we look forward to the interplay of these markets in 2024.
Speaker Change: We are transitioning our theme.
Speaker Change: And to 2024 from winning at Max margins to winning and Max margins, while maximizing operating efficiencies.
Thank you DXP sales and operational professionals for teaming up together and winning for our customer and stakeholders. Thank you to our corporate support team for their efforts to support both internal and external customers and thank you DXP for an awesome year, our future looks bright.
Speaker Change: And investments.
Speaker Change: Physical year 2023 was a record year in terms of sales dollars, achieving a new high sales watermark for DXP.
And physical 2023.
<unk>, we contained we continue to soundly execute on diversifying end markets with a focus on water and wastewater and other industrial markets.
Speaker Change: Also achieving the physical year up 10% plus adjusted EBITDA margins, we executed on our constant goal of 10% plus sales growth and 10% EBITDA margins and we will look to maintain that as we enter into physical 2024.
We also continued to execute on acquisitions, adding three great companies during the year, including Florida valve broadened.
Alliance pump and mechanical.
Speaker Change: Thus focusing on driving operating efficiencies, while still growing the business.
Also executing on our share repurchase.
Purchase program and refinancing our debt in the second half of 2023 cleaning up our capital structure and positioning DXP for organic and inorganic growth in 2024.
Speaker Change: We continue to successfully execute on our end market goals of diversification and scale.
At the end of physical 2023 energy was 25% of our business followed by chemical at 10% and with water and wastewater and food and beverage at 7% each and manufacturing in general industry at 8% and 12% respectively.
We continue to be excited about the future and delivering a differentiated customer experience, creating and engaging winning culture for DXP and investing in our business to strengthen our core capabilities and drive long term growth.
Speaker Change: In other words DXP has continued to deliver on balancing our risk from an end market perspective, and we see that in our physical 2023 results and we look forward to the interplay of these markets in 2024.
For physical 2023, DXP sales were 13, 4%.
And operating income was up 41, 9% compared to 2022 physical year 2023, and adjusted EBITDA were one $6 billion and $174 million risk.
Speaker Change: Thank you DXP sales and operational professionals for teaming up together and winning for our customers and stakeholders.
Respectively, with adjusted EBITDA margins of 10.38%.
Speaker Change: Thank you to our corporate support team for their efforts to support both internal and external customers and thank you DXP for an awesome year, our future looks bright.
Our strategy has always been to combine the financial strength talent resources technology and capabilities of a large company with the fast flexible entrepreneurial capabilities of our local business to deliver superior.
Speaker Change: And physical 2023, I mentioned, we contained we continue to soundly execute on diversifying end markets with a focus on water and wastewater and other industrial markets.
Value to our customers and our suppliers, while providing better growth opportunities for our Dx people. We continue to believe in this approach and look to renew our commitment to people processes and resources and technology as we scale DXP and remain focus on doubling the size of our business over there.
Speaker Change: We also continue to execute on acquisitions, adding three great companies during the year, including Florida valve broadened.
Speaker Change: Alliance pump and mechanical.
Speaker Change: Also executing on our share repurchase program and refinancing our debt in the second half of 2023 cleaning up our capital structure and positioning DXP for organic and inorganic growth in 2024.
Next three to five years, while making strategic investments that matched the evolution of DXP.
From a sales per day.
Standpoint, DXP experience continued improvement throughout the year with Q1, averaging six $673 million per business day, our profits for the quarter were positively impacted by a sequential increase in gross profit margins as well as an increase in SG&A expense.
Speaker Change: We continue to be excited about the future and delivering a differentiated customer experience, creating and engaging winning culture for DXP and investing in our business to strengthen our core capabilities and drive long term growth.
Associated with continued investment in our business.
Speaker Change: For physical 2023, DXP sales were 13, 4%.
However, in the midst of contained change in growth our year over year earnings showed improvement and resiliency as we grew diluted earnings per share to $3 eight non soon.
Speaker Change: And operating income was up 41, 9% compared to 2022 physical year 2023, and adjusted EBITDA were one $6 billion and $174 million respectively.
Again, thank you to the 2837 DXP people for your hard work and dedication and finishing the year.
Speaker Change: Respectively, with adjusted EBITDA margins of 10.38%.
As strong as possible. It is always my pleasure to share our fourth quarter, and then year financial results on their behalf.
Speaker Change: Our strategy has always been to combine the financial strength talent resources technology and capabilities of a large company with the fast flexible entrepreneurial capabilities of our local business to deliver superior.
In terms of cash flow and liquidity, we generated $94 million of free cash flow and physical 2023, which reflects dxp's focus on generating consistent cash flow, while investing and related working capital as the business continues to grow.
Speaker Change: Value to our customers and our suppliers, while providing better growth opportunities for our Dx people. We continue to believe in this approach and look to renew our commitment to people processes and resources and technology as we scale DXP and remain focus on doubling the size of our business over there.
This combined with the flexible capital structure put us in a position where we could keep executing on our acquisition strategy as well as return capital to our shareholders beer via opportunistic share repurchase as we have discussed the acquisitions have continued to diversify.
Speaker Change: Next three to five years, while making strategic investments that match the evolution of DXP.
Speaker Change: From a sales per day.
Speaker Change: Standpoint, DXP experienced continued improvement throughout the year with Q1, averaging six point.
Our end market exposure and position us well through some through various economic cycles and we are excited about 2024 and the growth we were pushing to see both organically and through acquisitions as we continue to have a strong pipeline of opportunities.
Speaker Change: Six to nine.
We're excited to add three new companies join us during the year of 2023 on top of the four we completed during 2022, Florida valve and equipment broadened and alliance pump and mechanical have been great additions to the DXP family.
Operator: Hi, gentlemen, this is the operator, we are currently having technical difficulties.
Speaker Change: <unk> Sharkey until that time your lines will be Cleveland musical. Thank you for your patience.
To all of our recent acquisitions welcome to DXP. We are excited to have you and it is it is great having you as a part of DXP.
Speaker Change: Yeah.
<unk> people have continued to find ways to deliver financial results and position us well for all our stakeholders in the face of extraordinary challenges. This is evidenced by our sales growth improved gross profit margins acquisitions and the overall teamwork of the Dx people.
Speaker Change: Yeah.
We continue to build our capabilities to provide complementary set of products and services in all our markets, which makes DXP very unique in our industry and gives us more ways to help our customers win. We also are consistently looking at reviewing opportunities, where we can grow market share we continue.
Our strategy with a relentless drive for progress that includes business and operational initiatives, which we believe will allow us to steadily improve our performance for all of our stakeholders. As we go into 2024, we are excited about the opportunity ahead and the potential DXP has to.
Continue to scale and grow within existing and new markets.
Total DXP sales and physical 2023 were up 13, 4% with service centers, leading the way at one 1 billion followed by innovative pumping solutions that $273 million and then supply chain services at $260 million in.
Terms of service centers, the diversity of end markets and our MRO nature within service centers allows us to continue to remain.
<unk> 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 growth, including the North Rockies, Alaska, Texas Gulf Coast, and South Central. Additionally, we continue to see strength in our <unk>.
Pressler product Division and we continue to expect that our end markets will remain constructive over the near future. It is.
Hartnett to energy as it pertains to energy excuse me, we believe that 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 in terms of Ips are antibody pumping solutions are Q4.
Average Ips backlog continues to stay ahead of the physical 2022 average. Additionally, our year to date average continues.
Feed our long term averages Ips backlog going back to 2015.
Which we highlighted occurring occurred for the first time in the second quarter and continue as we move into 2024.
What this indicates is that we are continuing to increase our bookings and we mentioned or as we mentioned earlier, we're likely in the front end of a good cycle on the energy related project work and we look forward to as we move into 2024 as we maintain growth our main focus.
Within Ips will be managing to the demand level, 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 the ebbs and flow of inflation.
Supply chain services experienced an increase year over year, primarily due to new customers that we added this year.
Our customer end markets contributing to SC SCS in 2023 included energy medical technology, and food and beverage.
Demand for Ses as services is increasing because of proven technology and efficiencies that they perform for all of their customers, but the sales cycle can be protracted and we look to our SCS leaders to add new customers as we move into 2024.
<unk> overall gross profit margins for the year were 31% a 160 basis point improvement over 2022, we displayed.
Consistent gross margin performance within our different segments throughout the year and added accretive gross profit margins through acquisitions that said service centers and Ips had meaningful improved gross profit margins year over year.
Overall DXP produced adjusted EBITDA of $174 3 million or an increase of 32, 4% year over year adjusted EBITDA as a percent of sales was 10, three 8% or an increase of 182.
Basis points compared to 2022.
In summary, we are pleased with our overall performance in 2023, we look to continue to drive improvement in our organic sales and marketing strategies drive further sales growth through acquisitions and anticipate physical 2024 to be a year focused on maintaining margins, while driving and land.
The ground for groundwork for long term operating efficiencies.
Overall.
Through our strategic investments and initiatives, we will remain focused on providing world class tools processes training technology to deliver value to our customers and suppliers and to help our DXP people be more productive.
So that they can better help our customers win I.
I would like to sincerely. Thank all of our DXP people, who continue to show show up to work with their passion commitment teamwork and selfless service, we have a tremendous team and it is an honor to deliver value for all our stakeholders.
I am pleased by our performance in physical 2023, I am proud of our efforts to continue to improve we are working we are growing sales in excess of the market and expect that in the near future. We expect to drive strong SG&A leverage manage <unk>.
<unk> capital and generate free cash flow.
If organic growth slows then free cash flow will grow.
And we will take advantage of the economy to grow profitably both organically and through acquisitions, we have grown sales on a compounded annual growth rate of over 7% since <unk> 2019, and we have achieved new highs in both sales and profitability and I would like to.
All of our stakeholders and especially our Dx people.
With that I will now turn it back to Kent to review the financials in more detail.
Thank you David and thank you to everyone for joining us.
Yes.
Fourth quarter.
Full year 2023 financially.
Yes.
Fiscal 2023 was a record year and new watermark in terms of sales and gross margins. Additionally, it is our first fiscal year of 10% plus adjusted EBITDA margins. We are excited to report these results and we look forward to moving into fiscal year 2020.
Specifically fiscal year 2023 financial performance reflects our ability to continue to execute on key themes that we have been focused on over the past three to five years.
Overall Dxp's fiscal 2023 financial results were great to see and reflect the following <unk>.
Strong year over year sales growth driven by service centers and innovative pumping solutions lessening impacts from inflation and price increases compared to a year ago.
Continued gross margin strength and stability.
Continued year over year and sequential growth in Ips energy and water related backlog and activity.
Consistent operating leverage leading to sustained adjusted EBITDA margins continued execution on our acquisition strategy, completing three acquisitions and reaching the early stages of scale within water and wastewater and.
Followed by innovative pumping solutions at $273 million, and then supply chain services at $260 million in terms of service centers. The diversity of end markets and our MRO nature within service centers allows us to continue to remain.
And significant capital return to shareholders through our share repurchase program.
Great High watermark year, and one that will position us well for 2024 and beyond.
Zillions and continue to experience consistent topline year over year growth from a regional perspective, the majority of our regions continue to experience year over year growth, including the North Rockies, Alaska, Texas Gulf Coast, and South Central. Additionally, we continue to see strength in our Erik <unk>.
Total sales for the fourth quarter increased <unk>, 2% year over year to $407 million that said this reflects improvement in sales per business day going from 665 5 million in Q3 with 63 business days to 61 days in Q4 or six $673 million sales per business day.
<unk> product division and we continue to expect that our end markets will remain constructive over the near future.
Acquisitions that had been with DXP for less than a year contributed $2 8 million in sales during the quarter.
<unk>.
Part two energy as it pertains to energy excuse me, we believe that 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 in terms of Ips are antibody pumping solutions are Q4.
Total sales for DXP for fiscal 2023 were $1 7 billion, increasing 13, 4% compared to fiscal 2022.
For the full year acquisitions contributed $33 $1 million in sales.
Average daily sales for the fourth quarter were $6 $6 7 million per day as previously mentioned, our close to flat to Q3, 2023 and were up one 8% versus Q4 2022.
Average Ips backlog continues to stay ahead of the physical 2022 average. Additionally, our year to date average continues.
Our sales per business day of $655 million in Q4 2022.
Seed our long term averages Ips backlog going back to 2015.
Average daily sales for the fiscal year 2023 were $6 6 million per day versus 585 million per day in fiscal 2022.
Which we highlighted occurring occurred for the first time in the second quarter and continue as we move into 2024.
In terms of our business segments innovative pumping solutions grew 18, 2% year over year. This was followed by service centers growing 13, 5% year over year and supply chain services growing eight 3% year over year in terms of our service centers regions within our service Center business segment, which experienced notable sales growth.
What this indicates is that we are continuing to increase our bookings and we mentioned or as we mentioned earlier, we're likely in the front end of a good cycle on the energy related project work and we look forward to as we move into 2024 as we maintain growth our main focus.
Year over year include the North Rockies.
Within Ips will be managing to the demand level, 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 the ebbs and flow of inflation.
Scott, Texas Gulf Coast, and South Central.
Key products and end markets continue to drive sales performance include air compressors rotating equipment.
And wastewater chemical general industrial food and beverage transportation and energy supply chain services performance continues to reflect the impact of the addition of new customers and specifically a large diversified chemical customer that we added in Q2 of last year and is fully ramped as of Q Q2 of 2023.
Supply chain services experienced an increase year over year, primarily due to new customers that we added this year.
Our customer end markets contributing to SC SCS in 2023 included energy medical technology, and food and beverage that said demand for SCS as services is increasing because of proven technology and efficiencies that they perform for.
That said, while supply chain services experienced a decline year over year in Q3 and Q4. This was primarily due to some facility closures with existing customers as well as the streamline inefficiencies. We brought two new customers that we added this year for fiscal 2023 supply chain services grew eight 3% and as we move into fiscal 2024.
All of their customers, but the sales cycle can be protracted and we look to our SCS leaders to add new customers as we move into 2024.
We will look for new customer additions.
In terms of innovative pumping solutions, we continue to experience increases in the energy and water related backlog.
<unk> overall gross profit margins for the year were 31% a 160 basis point improvement over 2022, we displayed consistent gross margin performance within our different segments throughout the year and added accretive gross profit margins through acquisitions that said.
Our Q4 energy related average backlog grew five 2% of our Q3 average backlog, which continues to be a notable.
Uptick excuse me compared to Q1 of this year and continues to be ahead of our 2015 2016 and 2017 average backlog. The conclusion continues to remain pretty.
<unk> service centers, and Ips had meaningful improved gross profit margins year over year.
Meaningfully above 2016, and 2017 sales levels and we are moving towards 2015 levels based upon where our backlog stands today.
Overall DXP produced adjusted EBITDA of $174 3 million or an increase of 32, 4% year over year adjusted EBITDA as a percent of sales was 10, three 8% or an increase of 182.
<unk> been experiencing strong organic sales growth within Ips, we experienced that in Q4 of 2023 and expect that trend to continue into 2024 in terms of our DXP water backlog as of Q4 were up 37% compared to the end.
Two basis points compared to 2022.
Turning to our gross margins Dxp's total gross margins were 31% 160 basis point improvement over fiscal 2022. This improvement was driven by strength in our Ips business segment, showing the greatest improvement with margins improving 349 basis points on a year over year comparative basis. This was <unk>.
In summary, we are pleased with our overall performance in 2023, we look to continue to drive improvement in our organic sales and marketing strategies drive further sales growth through acquisitions and anticipate physical 2024 to be a year focused on maintaining margins, while driving and les.
By 146 basis point improvement from service centers.
The ground for groundwork for long term operating efficiencies.
That said from a segment mix sales contribution surface finish contributed 68, 2% innovative pumping solutions 16, 3% and supply chain services contributing 15, 5% compared to last year Ses's mix contribution was higher at 16, 2%, which impacted gross margins slightly in <unk>.
Overall.
So through our strategic investments and initiatives, we will remain focused on providing world class tools processes training technology to deliver value to our customers and suppliers and to help our DXP people be more productive.
Fiscal 2022.
In terms of operating income combined all three business segments increased 174 basis points and year over year business segment operating income margins for $16 $3 million versus fiscal 2022.
So that they can better help our customers win.
Ken: I would like to sincerely. Thank all of our DXP people, who continue to show show up to work with their passion commitment teamwork and selfless service, we have a tremendous team and it is an honor to deliver value for all our stakeholders.
This was driven by improvements in operating income margins across all three business segments.
Operating income margins improved 324 basis points, driven by the addition of water and wastewater acquisitions and overall improvement within the energy related Ics business Service Center operating income margins improved 170 basis points on a comparative basis, a year over year operating income margins supply chain services operating income margins improved 14th.
David R. Little: I am pleased by our performance in physical 2023, I am proud of our efforts to continue to improve we are working we are growing sales in excess of the market and expect that in the near future. We expect to drive strong SG&A leverage manage.
<unk> points on a year over year comparative basis, the improvement in service center reflects the impact of acquisitions at a higher relative operating income margin total DXP operating income increased to 166 basis points versus fiscal 2022 to $138 $7 million.
Kent Yee: Working capital and generate free cash flow.
Kent Yee: If organic growth slows then free cash flow will grow.
Kent Yee: And we will take advantage of the economy to grow profitably both organically and through acquisitions, we have grown sales on a compounded annual growth rate of over 7% since night 2019, and we have achieved new highs in both sales and profitability and I would like to.
Our SG&A for the full year increased $42 3 million to $366 6 million. The increase reflects the growth in the business and associated incentive compensation as well as DXP investing in its people through merit pay raises as well as the addition of new personnel.
Kent Yee: All of our stakeholders and especially our Dx people.
SG&A as a percent of sales decreased slightly to $21 eight 4% versus 21, 9% of sales in fiscal 2022.
Kent Yee: With that I will now turn it back to Kent to review the financials in more detail.
Still anticipate that DXP will benefit from the leverage inherent in the business. Despite increased operating dollars supporting our growth and the impacts of acquisitions.
David R. Little: Thank you David and thank you to everyone for joining us.
David R. Little: Yes.
David R. Little: Fourth quarter.
Kent Yee: Full year 2020 financial.
Turning to EBITDA fiscal 2023, adjusted EBITDA was $174 3 million adjusted EBITDA margins were 10, 4%. This is our first fiscal year with adjusted EBIT adjusted EBITDA margins in excess of 10% and we will look for this to continue year over year adjusted EBITDA margins increased 182.
David R. Little: Yes.
David R. Little: Fiscal 2023 was a record year and new watermark in terms of sales and gross margins.
Additionally, it is our first fiscal year of 10% plus adjusted EBITDA margins. We are excited to report these results and we look forward to moving into fiscal year 2020.
David R. Little: Specifically fiscal year 2023 financial performance reflects our ability to continue to execute on key themes that we have been focused on over the past three to five years.
<unk> points or $47 $5 million. This reflects the fixed costs SG&A leverage we experienced as we grow sales. This translated into two eight times operating leverage.
Overall Dxp's fiscal 2023 financial results were great to see and reflect the following strong year over year sales growth driven by service centers and innovative pumping solutions.
In terms of our EPS or net income for fiscal 2023 was $68 8 million or earnings per diluted share for fiscal 2023 was $3 89 per share versus $2 47 per share last year adjusting for one time or noncash items associated with our $550 million refinancing during Q4.
Speaker Change: Offsetting impacts from inflation and price increases compared to a year ago.
Speaker Change: <unk> gross margin strength and stability.
Speaker Change: Continued year over year and sequential growth in Ips energy and water related backlog and activity.
And other items our earnings per diluted share for fiscal 2023 was $4 <unk> per share.
Speaker Change: <unk> operating leverage leading to sustained adjusted EBITDA margins continued execution on our acquisition strategy, completing three acquisitions and reaching the early stages of scale within water and wastewater.
Adjusted diluted EPS in Q4 was $1 12 per share.
Normalizing our effective tax rate for the Q4 pickup throughout 2023 diluted EPS would have been 69.
Speaker Change: And significant capital return to shareholders through our share repurchase program.
For sure for the fourth quarter.
Speaker Change: A great high watermark year, and one that will position us well for 2024 and beyond.
Turning to the balance sheet and cash flow in terms of working capital our working capital decreased $7 4 million from December of 2022 to $272 1 million as a percentage of sales. This amounted to 16, 2%, which is below the 18, 9% compared to this time last year at this point, we have moved in.
Speaker Change: Yeah.
Speaker Change: Total sales for the fourth quarter increased <unk>, 2% year over year to $407 million that said this reflects improvement in sales per business day going from $665 5 million in Q3 with 63 business days to 61 days in Q4 or six $673 million sales per business day.
Line with our historical averages are ranges in terms of investing in working capital and we have moved up our Q3 2022 high of 19, 9% of LTM sales, 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.
<unk> that had been with DXP for less than a year contributed $2 8 million in sales during the quarter.
Speaker Change: Total sales for DXP for fiscal 2023 were $1 7 billion, increasing 13, 4% compared to fiscal 2022.
As we scale and grow in terms of cash we had $173 $1 million in cash on the balance sheet as of December 31. This is an increase of $127 1 million compared to the end of Q4 2022, an increase of 149 nine.
Speaker Change: For the full year acquisitions contributed $33 $1 million in sales.
Speaker Change: Average daily sales for the fourth quarter were $6 $6 7 million per day as previously mentioned, our close to flat to Q3, 2023 and were up one 8% versus Q4 2022 for.
9 million since September.
This reflects the refinancing of our existing term loan b in the fourth quarter and a strong cash flow generation, we experienced during the fourth quarter, which we will touch upon later in my comments.
For our sales per business day of $6 $5 5 million in Q4 of 2022.
Speaker Change: Average daily sales for the fiscal year 2023 were $6 6 million per day versus 585 million per day in fiscal 2022.
As it pertains to our term loan B as a reminder, during the fourth quarter, we announced that we refinanced them.
Repriced, our term loan B, which now has a maturity of October 2013.
Speaker Change: In terms of our business segments innovative pumping solutions grew 18, 2% year over year. This was followed by service centers growing 13, 5% year over year and supply chain services growing eight 3% year over year in terms of our service centers regions within our service Center business segment, which experienced notable sales growth.
We successfully repriced the new term loan term loan b, reducing our borrowing costs by 50 basis points to silver plus 475 versus silver plus 525, while also raising an incremental $125 million in capital to support our acquisition.
And investments program over the next nine to 12 months.
Year over year include the North Rockies.
Speaker Change: Scott, Texas Gulf Coast, and South Central.
In terms of Capex Capex for fiscal 2023 was $12 3 million versus $4 9 million in fiscal 2022.
Speaker Change: Key products and end markets continue to drive sales performance include air compressors rotating equipment.
This increase reflects reinvestment 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.
Speaker Change: And wastewater chemical general industrial food and beverage transportation and energy supply chain services performance continues to reflect the impact of the addition of new customers and specifically a large diversified chemical customer that we added in Q2 of last year and has fully ramped as of Q Q2 of 2023.
Turning to free cash flow, we generated solid operating cash flow during the fourth quarter as we did during the first and third quarter. During Q4 fiscal 2023, we had cash flow from operations of $42 4 million and $106 2 million respectively for fiscal 2023, this translated into $94 million in free cash flow.
Speaker Change: That said, while supply chain service experienced a decline year over year in Q3 and Q4. This was primarily due to some facility closures with existing customers as well as the streamline inefficiencies. We brought two new customers that we added this year for fiscal 2023 supply chain services grew eight 3% and as we move into fiscal 2024.
While we continue to make improvements in our free cash flow. When we are growing DXP tends to make significant investments in inventory and project work throughout the year and we continue to experience. These investments as we did in 2023, but we have put a closer eye on managing this as we move through the cycles.
Speaker Change: We will look for new customer additions.
Speaker Change: In terms of innovative pumping solutions, we continue to experience increases in the energy and water related backlog.
Okay.
Return on invested capital ROIC fee.
For fiscal 2023 was 38% and continues to be above our cost of capital and is reflecting our improved profitability levels and efficient working capital management.
Speaker Change: Our Q4 energy related average backlog grew five 2% of our Q3 average backlog, which continues to be a notable uptick excuse me compared to Q1 of this year and continues to be ahead of our 2015 2016 and 2017 average backlog. The conclusion continues to remain that we are trending meaningfully.
As of December 31, our fixed charge coverage ratio was $2 69 to one and our secured leverage ratio was $2 one to one with a covenant EBITDA for fiscal 2023 of $178 4 million total debt outstanding on December 31 was $548 $6 million.
Speaker Change: About 2016, and 2017 sales levels and we are moving towards 2015 levels based upon where our backlog stands today.
In terms of liquidity as of December 31st we are undrawn on our ABL with $2 9 million in letters of credit outstanding with $132 1 million of availability and liquidity of $305 3 million, including $173 1 million of cash, which some of it has already been used to finance the purchases of Hennessy, Kathy and pro sale, which.
Speaker Change: We have been experiencing strong organic sales growth within Ips, we experienced that in Q4 of 2023 and expect that trend to continue into 2024 in terms of our DXP water backlog as of Q4 were up 37% compared to the end.
Speaker Change: Turning to our gross margins Dxp's total gross margins were 31%, a 160 basis point improvement over fiscal 2022.
We closed subsequent to the fourth quarter.
We're excited to have them and they will start reporting with us during the first quarter of 2024.
Speaker Change: This improvement was driven by strength in our Ips business segment, showing the greatest improvement with margins improving 349 basis points on a year over year comparative basis. This was followed by a 146 basis point improvement from service centers.
In terms of acquisitions Dxp's acquisition pipeline continues to grow and the market continues to present compelling opportunities looking forward. We expect this to continue through fiscal 2024, and we look forward to closing a minimum of a one to three additional acquisitions by the middle of 2024.
Speaker Change: That said from a segment mix sales contribution service centers contributed 68, 2% innovative pumping solutions 16, 3% and supply chain services contributing 15, 5% compared to last year Ses's mixed contribution was higher at 16 points, 2%, which impacted gross margins slightly.
In terms of capital allocation, we repurchased a returned $54 $7 million to shareholders via our share repurchase program in fiscal 2023 of our totaled one 7 million shares of DXP stock.
The last item I briefly want to touch upon is the outstanding progress we have made with our accounting and finance team. During this year, we invested heavily in growing our finance and accounting department by hiring a new CEO, a new director of technical accounting and additional assistant controllers. This.
Speaker Change: Fiscal 2022.
Speaker Change: In terms of operating income combined all three business segments increased 174 basis points and year over year business segment operating income margins for $16 $3 million versus fiscal 2022.
Is that allowed us to continue on the path of continuous improvement, which is this year is expressing itself in the remediation of two material weaknesses positioning us to remediate the rest of fiscal year 2024, as I mentioned back in 2021, when we started the transition to Pwc progress is never a straight line and we are staying nimble as we continue to grow we are at an inflection point.
Speaker Change: This was driven by improvements in operating income margins across all three business segments.
Speaker Change: Operating income margins improved 324 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 170 basis points on a comparative basis and year over year operating income margins supply chain services operating income margins improved 14.
And I'm excited to work with Pwc, our enhanced team and the entirety of DXP as we're scaling them real time organically and through acquisitions.
Speaker Change: Basis points on a year over year comparative basis, the improvement in service center reflects the impact of acquisitions at a higher relative operating income margin total DXP operating income increased 166 basis points versus fiscal 2022 to $138 7 million.
In summary, we are pleased with our fiscal 2023 performance, we achieved record adjusted earnings performance at $4 <unk> per share and our cash flow from operations also accelerated with further rooms with further room for improvement higher earnings improved working capital efficiency delivered a 54% free cash flow conversion to EBITDA.
Speaker Change: Our SG&A for the full year increased $42 3 million to $366 6 million. The increase reflects the growth in the business and associated incentive compensation as well as DXP investing in its people through merit pay raises as well as the addition of new personnel.
On 13, 5% sales growth. These achievements contributed to a remarkable annual return on invested capital of 38% demonstrating gains from our strategic initiatives as well as our disciplined approach to capital allocation and our acquisition strategy heading into 2024, we refreshed our balance sheet, which allowed us to continue to invest in the <unk>.
Speaker Change: SG&A as a percentage of sales decreased slightly to 20, 184% versus 21, 9% of sales in fiscal 2022, we still anticipate that DXP will benefit from the leverage inherent in the business. Despite increased operating dollars supporting our growth and the impacts of acquisitions.
Again, both organically excuse me and through acquisitions through the cycle, while also returning capital to our shareholders and exciting time to be a part of DXP. We are excited about the future and we will keep our eyes focused on those things we can control and what is ahead of us but it is what is in front of US is always bigger than what is behind us and the best as always.
Speaker Change: Turning to EBITDA fiscal 2023, adjusted EBITDA was $174 3 million adjusted EBITDA margins were 10, 4%. This was our first fiscal year with adjusted EBIT adjusted EBITDA margins in excess of 10% and we will look for this to continue year over year adjusted EBITDA margins increased 182.
We look forward to a successful 2024 I will now turn the call over for your questions.
The floor is now open for your questions to ask a question at this time. Please press star followed by the number one on your telephone keypad.
Speaker Change: Basis points or $47 $5 million. This reflects the fixed costs SG&A leverage we experienced as we grow sales. This translated into two eight times operating leverage.
Just a moment to compile the Q&A roster.
Speaker Change: In terms of our EPS or net income for fiscal 2023 was $68 8 million or earnings per diluted share for fiscal 2023 was $3 89 per share versus $2 47 per share last year adjusting for one time or noncash items associated with our $550 million refinancing during Q4.
Your first question comes from the line of Max <unk> with Stephens, Inc. Your line is open.
Good afternoon. Thank you for taking my questions.
Good afternoon, Max how are you.
Doing fine how about yourself.
Speaker Change: And other items our earnings per diluted share for fiscal 2023 was $4 <unk> per share our adjusted diluted EPS in Q4 was $1 12 per share.
Doing good.
Got it.
Yes. The first question I had is can you provide any color on quarter to date trends for daily sales.
Including recent acquisitions, if that's possible.
Speaker Change: Normalizing our effective tax rate for the Q4 pickup throughout 2023 diluted EPS would have been 69.
Yes, no absolutely what I'll do is I'll.
Yeah.
Speaker Change: For sure for the fourth quarter.
Q4, and then bring you through February which we have a flash just in terms of through February so.
Speaker Change: Yes.
Speaker Change: Turning to the balance sheet and cash flow in terms of working capital our working capital decreased $7 4 million from December of 2022 to $272 1 million.
In terms of our sales per business day in October that was $6 $3 92 and <unk>.
Speaker Change: As a percentage of sales this amounted to 16, 2%, which is below the 18, 9% compared to this time last year at this point, we have moved in line with our historical averages are ranges in terms of investing in working capital and we have moved off our Q3 2022 high of 19, 9% of LTM sales, we do anticipate.
Remember 6553.
And then in December seven $1 million to $5 million.
In January.
Five $9 million to $5 million.
And then in February 637 million.
Note there matches our January.
Yes.
Yes.
Speaker Change: A bit 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 $173 $1 million in cash on the balance sheet as of December 31. This is an increase of $127 $1 million compared.
Is up four 5% year over year, and then our February Flash point here.
Year over year on a comparative basis.
Got you. Thank you for the color on that and what are the number of selling days you are assuming for <unk>.
We will have 63 actually business days.
Speaker Change: At the end of Q4, 2022, and an increase of 149 <unk>.
Q1.
One day lag.
Speaker Change: <unk> 9 million since September.
Then what we had in 2023 and probably.
Speaker Change: This reflects the refinancing of our existing term loan b in the fourth quarter and the strong cash flow generation, we experienced during the fourth quarter, which we will touch upon later in my comments.
No.
In March of last year, we had 23 business days and this year, we will have 20 business days.
Speaker Change: As it pertains to our term loan B as a reminder, during the fourth quarter, we announced that we refinanced them.
Three less business days.
Got you.
Repriced, our term loan B, which now has a maturity of October 2013.
And then just last question from me how are you all thinking about <unk> adjusted EBITDA margins progressing versus <unk> <unk>.
Speaker Change: We successfully repriced the new term loan term lumpy, reducing our borrowing costs by 50 basis points to sulfur plus 475 versus sulfur plus 525, while also raising an incremental $125 million in capital to support acquisition and.
Three.
Our EBITDA margins today, partially or.
A reflection of mix.
Mean.
At a very high level.
Speaker Change: And investments program over the next nine to 12 months.
Service centers versus Ips versus supply chain, and then as you kind of narrow down from there some of our more recent themes of water wastewater and.
Speaker Change: In terms of Capex Capex for fiscal 2023 was $12 3 million versus $4 9 million in fiscal 2022.
And air compressors, depending upon that mix contribution kind of impacts are.
This increase reflects reinvestment in some of our facilities and equipment on behalf of our employees as we move forward, we'll continue to invest in the business as we focus on growth.
EBITDA margins today, so all that to say is.
Our goal is always 10% plus.
Speaker Change: Turning to free cash flow, we generated solid operating cash flow during the fourth quarter as we did during the first and third quarter. During Q4 fiscal 2023, we had cash flow from operations of $42 4 million and $106 2 million respectively.
We feel like we've got the appropriate mix today, assuming all businesses are performing kind of achieve that but.
It is influenced a little bit by the mix of the different contributions.
Got it thanks for the color and I'll go ahead and turn it back.
For fiscal 2023, this translated into $94 million in free cash flow, while we continue to make improvements in our free cash flow. When we are growing DXP tends to make significant investments in inventory and project work throughout the year and we continue to experience. These investments as we did in 2023, but we have put a closer eye on managing this as we move through the site.
There are no further questions at this time.
Mr. David Liddle, I'll turn the call back over to you.
Yes, Thanks, Bob.
I'd like to conclude by.
Speaker Change: <unk>.
<unk>.
Speaker Change: Okay.
Our sales team.
Speaker Change: Return on invested capital or ROIC for.
King our inside sales team.
Speaker Change: For fiscal 2023 was 38% and continues to be above our cost of capital and is reflecting our improved profitability levels and efficient working capital management.
King.
Operations thinking.
Counting thinking everybody everybody contributed to a what I consider a really solid great year and it's in it's really appreciated we're doing a lot of really good things for our customers and a lot of.
Speaker Change: As of December 31, our fixed charge coverage ratio was 269 to one and our secured leverage ratio was $2 one to one with a covenant EBITDA for fiscal 2023 of $178 4 million total debt outstanding on December 31 was $548 $6 million.
Our growth initiatives that I think are helping we look forward to.
2024.
Speaker Change: In terms of liquidity as of December 31, we are undrawn on our ABL with $2 9 million in letters of credit outstanding with $132 1 million of availability and liquidity of $305 $3 million, including $173 1 million in cash, which some of it has already been used to finance the purchases of Hennessy, Kathy and pro sale, which.
Onward and upward.
Everybody and thanks, all our Dx people in bank, all our stakeholders out there.
We will see you guys next time.
There are no further questions at this time and ladies and gentlemen. This concludes today's conference call you may now disconnect.
Speaker Change: We closed subsequent to the fourth quarter.
Speaker Change: We're excited to have them and they are reporting with us during the first quarter of 2024.
Speaker Change: In terms of acquisitions Dxp's acquisition pipeline continues to grow and the market continues to present compelling opportunities looking forward. We expect this to continue through fiscal 2024, and we look forward to closing a minimum of a one to three additional acquisitions by the middle of 2024.
Speaker Change: In terms of capital allocation, we repurchased a returned $54 $7 million to shareholders via our share repurchase program in fiscal 2023, or a total of one 7 million shares of DXP stock.
Speaker Change: The last item I briefly want to touch upon is the outstanding progress we have made with our accounting and finance team. During this year, we invested heavily in growing our finance and accounting department by hiring a new CEO, a new director of technical accounting and additional assistant controllers. This has allowed us to continue on the path of continuous improvement, which this year is expressing itself in there.
Speaker Change: Mediation of two material weaknesses positioning us to remediate the risk in fiscal year 2024, as I mentioned back in 2021, when we started the transition to Pwc progress is never a straight line and we are staying nimble as we continue to grow we are at an inflection point and I'm excited to work with Pwc, our enhanced team and the entirety of DXP as we are.
Speaker Change: Scaling in real time organically and through acquisitions.
Speaker Change: In summary, we are pleased with our fiscal 2023 performance, we achieved record adjusted earnings performance at $4 <unk> per share and our cash flow from operations also accelerated with further rooms with further room for improvement higher earnings improved working capital efficiency delivered a 54% free cash flow conversion to EBITDA.
Speaker Change: On 13, 5% sales growth. These achievements contributed to a remarkable annual return on invested capital of 38% demonstrating gains from our strategic initiatives as well as our disciplined approach to capital allocation and our acquisition strategy heading into 2024, we refreshed our balance sheet, which allowed us to continue to invest in the <unk>.
Speaker Change: <unk>, both again, both organically excuse me and through acquisitions through the cycle. While also returning capital to our shareholders and exciting time to be a part of DXP. We are excited about the future and we will keep our eyes focused on those things we can control and what is ahead of us but it is what is in front of US is always bigger than what is behind us and the best as always.
Speaker Change: We look forward to a successful 2024 I will now turn the call over for your questions.
Speaker Change: The floor is now open for your questions.
Speaker Change: I ask a question at this time, please press star followed by the number one on your telephone keypad.
Speaker Change: We'll pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of Max <unk> with Stephens, Inc. Your line is open.
Max: Good afternoon. Thank you for taking my questions.
Max: Good afternoon, Max how are you.
Max: Doing fine how about yourself.
Doing good.
Max: Good.
Max: Yes. So first question I had is can you provide any color on quarter to date trends for daily sales.
Max: Including recent acquisitions, if that's possible yes.
Speaker Change: Yes, no absolutely what I'll do is I'll walk through Q4, and then bring you through February which we have a flash just in terms of through February so.
Speaker Change: In terms of our sales per business day in October that was $6 $3 92 in November 6553.
Speaker Change: And then in December seven $1 million to $5 million.
Speaker Change: In January.
Speaker Change: 592 5 million.
Speaker Change: And then in February 637 million.
Speaker Change: Note there matches our January.
Speaker Change: The state is.
Speaker Change: He is up four 5% year over year and then our February flash is up 13% year over year on a comparative basis.
Speaker Change: Got you. Thank you for the color on that and why did the number of selling days you are assuming for <unk>.
Speaker Change: We will have 63 actually business days.
Speaker Change: Q1.
Speaker Change: Is one day less.
Speaker Change: Then what we had in 2023 and probably.
Speaker Change: No.
Speaker Change: In March of last year, we had 23 business days and this year, we will have 20 business days.
Three less business days.
Speaker Change: Got you.
Speaker Change: And then just last question from me how are you all thinking about <unk> adjusted EBITDA margins progressing for <unk> 'twenty.
Speaker Change: Three.
Speaker Change: Our EBITDA margins today, partially or.
Speaker Change: A reflection of mix.
Good evening.
At a very high level.
Service centers versus Ips versus supply chain, and then as you kind of narrow down from there some of our more recent themes of water wastewater and air compressors, depending upon that mix contribution kind of impacts are.
Speaker Change: EBITDA margins today, so all that to say is.
Our goal is always 10% plus.
Speaker Change: We feel like we've got the appropriate mix today, assuming all businesses are performing to kind of achieve that but.
It is influenced a little bit by the mix of the different contributions so.
Speaker Change: Got it thanks for the color and I'll go ahead and turn it back.
Speaker Change: There are no further questions at this time.
Speaker Change: Mr. David Little I'll turn the call back over to you.
David R. Little: Yes. Thanks.
I'd like to conclude by thanking.
David R. Little: Our sales team.
David R. Little: <unk> our inside sales team.
And thanks again.
Operations thinking.
Speaker Change: Counting thinking hey, Rob.
Speaker Change: Body, everybody contributing to a what I consider a really solid great year and it's in it's really appreciated we're doing a lot of really good things for our customers and a lot of.
Speaker Change: Our growth initiatives that I think are helping we look forward to.
Speaker Change: 2024.
Speaker Change: And onward and upward so.
Speaker Change: Thank you everybody and thanks, all our Dx people bank, all our stakeholders out there.
Speaker Change: We will see you guys next time.
Speaker Change: There are no further questions at this time and ladies and gentlemen. This concludes today's conference call you may now disconnect.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: There are no.
Speaker Change: Okay.