Q1 2024 DXP Enterprises Inc Earnings Call
Operator: Thank you for standing by, and welcome to the DXP Enterprises First Quarter Earnings Call. All lines have been placed into listen-only mode.
Thank you for standing by and welcome to the DXP Enterprises first quarter earnings call.
Operator: All lines have been placed into listen only mode.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. And finally, a reminder that this conference is being recorded. Now I would like to turn the call over to Kent Yee, Chief Financial Officer. Kent, please go ahead.
Operator: After the Speakers' remarks, there will be a question and answer session.
Kent Yee: We'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
Kent Yee: I would like to withdraw your question Press Star One again and finally a reminder, today's conference is being recorded.
Kent Yee: Now I would like to turn the call over to <unk> Chief Financial Officer, Kent. Please go ahead.
Kent Yee: Thank you. This is Kent Yee, and welcome to DXP's Q1 2024 conference call to discuss our results for the first quarter ending March 31st, 2024. 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 is contained in our SEC FON.
Operator: Thank you this is Kent Yee and welcome to Dxp's Q1, 2024 conference call to discuss our results for the first quarter ended March 31, 2020 for Joy.
Kent Yee: Joining me today is our chairman and CEO David Little.
Kent Yee: However, DXP assumes no obligation to update that information as a result of new information or future events. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our earnings press release. The press release and an accompanying investor presentation are now available on our website at ir.dxpe.com. I will now turn the call over to David Little, our Chairman and CEO, to provide his thoughts and a summary of our first quarter performance and financial results.
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.
David R. Little: Actual results may differ materially from those contemplated by these forward looking statements.
David R. Little: 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.
David R. Little: 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.
David R. Little: The press release and in the accompanying Investor presentation are now available on our web site at IR Dot DXP Dot com.
Kent Yee: I will now turn the call over to David Little our chairman and CEO to provide his thoughts and a summary of our first quarter performance and financial results.
David R. Little: Good morning, and thank you, Kent. And thanks to everyone for joining us today at our fiscal 2024 first quarter conference. We are off to a great start in 2024. We remain highly focused on providing the expertise our customers have come to expect from DXP and finding ways to help them manage their supply chain, increase their uptime, increase productivity, achieve their ESG objectives, and successfully run their operations. Many customers, especially those in the industrial, energy, and utility space, continue to see solid in-market demand for their products.
David R. Little: Good morning, and thank you, Ken and thanks to everyone for joining us today on our fiscal 'twenty to 'twenty four first quarter conference call.
David R. Little: We are off to a great start in 2024, we remain highly focused on providing expertise our customers have come to expect from DXP and finding ways to help them manage their supply channel increase their uptime increased productivity achieve their ESG objectives and successfully run their operations.
David R. Little: <unk>, many customers, especially those in industrial energy and utilities space continue to see solid end market demand for their products.
David R. Little: DXP remains committed to its overall focus of being customer-driven experts to keep their operations running and their people safe. This consistent approach has fueled our financial results. First Quarter Adjusted EBITDA of $40.3 million and Adjusted Diluting Earnings Per Share of $0.74 were supported by sequential sales growth of 1.4%.
David R. Little: <unk> remains committed to our overall focus of being customer driven experts to keep their operations running and there are people cite this consistent approach has fueled our financial results.
David R. Little: First quarter, adjusted EBITDA of $40 3 million and adjusted Diluting earnings per share of 74 cents was supported by sequential sales growth of one 4%.
David R. Little: Thanks to the efforts of all our DX people across the company, we continue to build on positive financial results in physical 2023 and driving further operational improvements while performing for our customers. I personally want to thank all our DXP stakeholders, in particular all our DXP people, for their determination and hard work as we continue to grow and improve the business. We are encouraged by our results and remain focused on growing our business organically and inorganically in fiscal year 2024.
David R. Little: The efforts of all our Dx people across the company as we continue to build on positive financial results in physical 2023, and driving further operational improvements while performing for our customers.
David R. Little: I personally want to thank all our DXP stakeholders in particular, all our DXP people for their determination and hard work as we continue to grow and improve the business. We are encouraged by our results and we remain focused on growing our business organically and inorganically and physical year.
David R. Little: <unk> 2024 I.
David R. Little: I will begin today with some perspective on our first quarter and thoughts on the remainder of 2024. Kent will then take you through the key financial details after my remarks. After his prepared comments, we will open for Q&A.
David R. Little: I will begin today with some perspective on our first quarter and thoughts on the remainder of 2020 for Kent will then take you through the key financial details after my remarks.
David R. Little: Our remarks.
David R. Little: After his prepared comments, we will open for Q&A.
David R. Little: Overall, we are pleased with our first quarter results. Our first quarter highlights good execution and a number of normalized trends across DXP, with a lot of effort now focused on capturing additional market share versus managing and working through inflation. We also experienced inorganic growth by continuing execution of our acquisition strategy to accelerate our in-market diversification effort. We closed three great acquisitions in the first quarter, including the addition of an industrial and seal company, ProSeal, and two additional DXP water acquisitions, Henze Mechanical Sales, and Cappy & Associates.
David R. Little: Overall, we are pleased with our first quarter results, our first quarter highlights good execution in a number of normalized trends across DXP with a lot of effort now focused on cap, capturing additional market share versus managing and working through inflation. We also experienced the inorganic growth.
David R. Little: By continued execution of our acquisition strategy to accelerate our end market diversification efforts, we closed three great acquisitions in the first quarter, including the addition of an industrial and seal company proceed.
David R. Little: And two additional DXP water acquisitions, ANZ mechanical sales and copy and associates to our new Dx people welcome to DXP and it is great to have you as a part of DXP.
David R. Little: To our new DX people, welcome to DXP, and it's great to have you as a part of DXP. That said, we are building more resilient, diversified businesses that can generate solid performance in uncertain economic conditions. And as we discussed last year, we will believe you are seeing and continue to see evidence of these efforts in Q1. DXP's broad-based industrial end markets, which is 75% of our business today, continue to show resilience primarily due to price increases and, in DXP's case, continued growth in demand and market share. The ISM PMI Manufacturing Index, which gives us an indication of how DXP's broad industrial markets will perform, moved from a 49.1 reading in January to a 50.3 reading in March.
David R. Little: That said, we are building more resilient diversified business that can generate solid performance and uncertain economic conditions and as we discussed last year, we believe youre seeing and continue to see evidence of these efforts in Q1.
David R. Little: Dxp's broad based industrial end markets, which is 75% of our business today.
David R. Little: Just to show resilience primary two primarily due to price increases and Dxp's.
David R. Little: And in Dxp's case continued growth and demand and market share.
David R. Little: Ism's PMI manufacturing index, which gives us an indication of how dxp's broad industrial markets will perform move from $49. One reading in January to a 53 reading in March this trend is technically moving from contraction to growing.
David R. Little: This trend is technically moving from contraction to growing territory, but in April, we began to, we began, we went back to a reading of 49.3. We continue to believe in today's inflationary environment that this slight contraction is getting offset by price increases still moving through the supply channel, and in DXP's case, continued growth in demand because of the markets we serve and our growth strategies. We will continue to monitor progress as we move through 2024.
David R. Little: Territory.
David R. Little: But in April we began to we began we went back to our reading of $49 two.
David R. Little: We continue to believe in today's inflationary environment. This slight contraction is getting offset by price increases still moving through the supply channel and in DXP case continued growth in demand because of the markets, we serve and our growth strategies, we will continue to monitor.
David R. Little: As we move through 2024.
David R. Little: Gas, which is the remaining 25% of DXP, has shown consistent demand through 2023 and the early parts of 2024, and we anticipate growth in the future. Given the geopolitical circumstances and the overall relative strength in prices, most of our business in oil and gas is tied closer to actual production and increases in capital expenditure. We continue to experience a pickup in sales activity in Q1, which reflects the increase in backlog we continue to see.
David R. Little: Oil and gas, which is the remaining 25% of DXP has shown consistent demand through 2023 and the early parts of 2024, and we anticipate growth in the future given the geopolitical circumstances and the overall relative strengthened prices most of our biz.
David R. Little: And oil and gas is tied closer to actual production and increases in capital budgets.
David R. Little: We continue to experience a pickup in sales activity in Q1, which reflects the increase in backlog we continue to see.
David R. Little: Regarding broader demand, underlying trends remain consistent with the fourth quarter, and trends were the strongest in March, as is typical with sales per business day, going from $5.9 million per day in January to $7.5 million per day in March. Total DX field.
David R. Little: Regarding broader demand underlying trends remaining consistent with the fourth quarter and trends are the strongest in March as is typical with sales per business day going from $5 9 million per day in January to seven 5 million per day in March.
David R. Little: Total <unk> sales.
David R. Little: DXP's sales for Q1 increased 1.5% and 4% sequentially and are $412.6 million, or an average of $6.6 million per business day for the first. Thank you to the 2,920 DX people for your hard work and dedication. In terms of Q1 financial results, Innovative Public Solutions led the way, growing sales 3.2% sequentially and 21% year over year, followed by service centers growing 1.1% sequentially, and then supply chain services also growing sales 1.1% sequentially. In terms of IPS, Innovative Pumping Solutions, our Q1 average IPS energy backlog continues to stay ahead of all averages going back to 2015, with the exception of 2018.
David R. Little: DXP sales for Q1 increased one point.
David R. Little: 4% sequentially, and our $412 6 million.
David R. Little: Or an average of $6 6 million per business day for the first quarter.
David R. Little: Thank you to the 2920 Dx people for your hard work and dedication.
David R. Little: In terms of Q1 financial results innovative pumping solutions led the way growing sales three 2% sequentially and 21% year over year, followed by service centers growing one 1% sequentially and then supply chain services also growing.
David R. Little: Sales, one 1% sequentially.
David R. Little: In terms of Ips innovative pumping solutions, our Q1 average Ips energy backlog continues to stay ahead of all averages going back to 2015 with the exception of 2018 average our start in 2024 had meaningful bookings in the months of February.
David R. Little: Our start in 2024 had meaningful bookings in the months of February and March, and this signals to us that we should have strong energy product revenues over the next nine to 15 months. We are continuing to get bookings, and as we mentioned earlier, we are likely to be in the front end of a good cycle on energy-related project work that we look forward to as we move through 2024. Service centers keep essential customers running with MROP, maintenance, repair, operating, production, products, and services necessary for the customer to stay in business.
David R. Little: And March.
David R. Little: And this signals to us that we should have strong energy product revenues over the next nine to 15 months, we are continuing to get bookings and as we mentioned earlier we were likely.
David R. Little: In the front end of a good cycle on energy related project work that we look forward to as we move through 2024.
David R. Little: Service centers keep essential customers running with MRO P maintenance repair operating production products and services necessary for the customer to stay in business. The diversity of the end markets and our MRO nature within service centers allows us to continue to experience.
David R. Little: The diversity of the end markets and our MRO nature within service centers allows us to continue to experience balanced sales growth through the first quarter. Regions that experienced sequential as well as year-over-year sales growth included South Atlantic, the North Central, Additionally, Canadian Rotating Equipment and Seal Division experienced sequential and year-over-year sales growth from a geographic and product perspective. Also, notable regions that contributed during the quarter included Southwest, South Central, and South Rockies.
David R. Little: <unk> balanced sales growth through the first quarter.
David R. Little: Regions that experienced sequential as well as year over year sales growth included South Atlantic the north Central Additionally, Canadian rotating equipment and seal division from a geographic and product perspective experience sequential and year over year sales growth also.
David R. Little: On a notable regions that contributed during the quarter included southwest South Central and South Rockies.
David R. Little: Supply chain services increased 1.1% sequentially and experienced a 7.6% decline year over year, primarily due to some facility closures with our customers, as well as the streamlining and efficiency we brought to our new diversified chemical customer we added last year. We mentioned this in Q3 of last year, and we will look for customer additions as well as to continue to manage procurement products and manage inflation. But both year-over-year and sequential growth will flatten until we start ramping new customers.
David R. Little: Slide chain services increased one 1% sequentially and experienced a seven 6% decline year over year, primarily due to some facility closures with our customers as well as the streamlining and efficiency, we brought to our new diversified chemical customer we.
David R. Little: Added last year.
David R. Little: We mentioned this in Q3 of last year, and we will look for these customers. We will look for customer additions as well as to continue manage procurement products and managing inflation, but both year over year and sequential growth will flatten until we start ramping new customers that said.
David R. Little: That said, demand for SCS services is increasing because of the proven technology and efficiencies they perform for all their individual customers. But the sales cycle can be protracted, and as we look to our CSC leaders to add new customers as we move forward in 2020. DXP's overall gross profit margins for the quarter were 30%, a 55 basis point improvement over Q1 of 2023. A special thanks to our DX people who have stayed on top of supplier product increases and increased labor costs and overall efficiency.
David R. Little: Said demand for SCS services is increasing because of the proven technology inefficiencies. They perform for all of their individual customers, but the sales cycle can be protected protracted and as we look to our CSC leaders to add new customers as we move forward in 2002.
David R. Little: 24.
David R. Little: Dxp's overall gross profit margins for the quarter were 30% at 55 basis point improvement over Q1 of 2023, a special thanks to our Dx people, who have stayed on top of supplier product increases and increased labor costs and overall efficiencies over.
David R. Little: Overall, DXP produced EBITDA of $40.3 million, and EBITDA is a percent of sales of 9.8%, which is below our stated goal of 10% plus. Regarding capital allocations, we continue to make strategic investments to fuel growth and diversify DXP through acquisitions while opportunistically repurchasing shares. By balancing these two approaches, or pursuing both, we are driving long-term value for our shareholders.
David R. Little: They're all DXP produced EBITDA of $40 3 million and EBITDA as a premise percent of sales of nine 8%, which is below our stated goal of 10% plus rigs.
David R. Little: Regarding capital allocations, we continued to make strategic investments to fuel growth and diversity.
David R. Little: Diversified DXP through acquisitions, while Opportunistically repurchasing shares.
David R. Little: Balancing these two approaches are pursuing both we are driving long term value for our shareholders. During this quarter, we purchased 326000 shares amounting to $16 8 million.
Kent Yee: We produced over $24.1 million in free cash flow, a solid start to the year and a good benchmark for our expectations going forward. Let me conclude my remarks by saying that I am encouraged by our continued sequential improvement in sales and profitability. I believe DXP is well positioned. We continue to make progress on our growth strategies, and our commitments to customers are stronger than ever. We are complementing these efforts with a focus on improving efficiency while making strategic investments in the business.
David R. Little: We produced over $24 1 million and free cash flow a solid start to the year and a good benchmark for our expectations going forward.
Kent Yee: Let me conclude my remarks by saying that I am encouraged with our continued sequential improvement in sales and profitability I believe DXP is well positioned we continue to make progress on our growth strategies and our commitments to customers is stronger than ever we are complementing these efforts with a focus on improving.
Kent Yee: Efficiency, while making strategic investments in the business, we are driving growth and improvements at DXP and we look forward to navigating and working through physical 2024.
Kent Yee: We are driving growth and improvements at DXP, and we look forward to navigating and working through physical 2020. Finally, I would like to thank our DX people for a great quarter and a positive start to the beginning of 2024. We're excited for what is next. 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.
Kent Yee: Finally, I would like to thank our Dx people for a great quarter and a positive start to the beginning of 2024. We're excited for what is next.
Kent Yee: With that I will now turn it back to Kent to review the financials in more detail.
Operator: Thank you, David, and thank you to everyone for joining us for our review of our first quarter 2020-2024 financial results. Q1 financial performance reflects DXP's ability to continue to successfully navigate the market and execute and create value for all our stakeholders. We have been successful in transforming and diversifying DXP thus far, but we still have progress to make. We have been successful in navigating inflation pressures. We have been successful in building DXP into becoming the best solution for industrial customers' needs.
Kent Yee: Thank you David and thank you to everyone for joining us for a review of our first quarter 2020, and 22024 financial results.
Operator: Q1 financial performance reflects dxp's ability to continue to successfully navigate through the market and execute and create value for all our stakeholders.
Operator: We have been successful in transforming and diversify and DXP, thus far but we still have progress to make we have been successful in navigating inflation pressures. We have been successful in building DXP into becoming the best solution for the industrial customers needs and we will be successful in containing continuing to grow sales and earnings and becoming a distributor.
Operator: And we will be successful in continuing to grow sales and earnings and becoming a distributor dedicated to the highest quality of customer service through product. Stand by. And We were just bringing the speakers back into the room.
Operator: Dedicated to the highest quality of customer service through product.
Operator: Please stand by, and we will just bring the speakers back into the room.
Operator: Please standby and we would guess, bringing the speakers back into the room.
Speaker Change: One 4% sequentially.
Kent Yee: 412 points, it's me, that has been with DXP for less than a year and contributed $11.8 million. Quarter.
Speaker Change: Good morning, and 12 points.
Operator: Yes.
Kent Yee: Acquisitions that have been with DXP for less than a year contributed $11 8 million in sales during the quarter average daily sales for the first quarter was $6 6 million per day versus $6 7 million per day in Q4, 'twenty, three and $6 6 million per day in Q1 2003.
Kent Yee: Average daily sales for the first quarter were $6.6 million per day versus $6.7 million per day in Q4-23 and $6.6 million per day in Q1-23. Adjusting for acquisitions, average daily sales were $6.4 million per day for the first quarter of 2024 versus $6.3 million per day during the first quarter of 2023. That said, the average daily sales trends during the quarter went from $5.9 million per day in January to $7.5 million per day in March, reflecting a typical quarter-end push as we closed out the first quarter.
Kent Yee: Adjusting for acquisitions average daily sales were $6 4 million per day for the first quarter of 2024 versus $6 3 million per day during the first quarter of 2023.
Kent Yee: That said the average daily sales trends during the quarter went from $5 9 million per day in January.
Kent Yee: Seven 5 million per day in March, reflecting a typical quarter and push as we closed out the first quarter.
Kent Yee: In terms of our business segments, innovative pumping solutions grew 3.2% sequentially and 21% year-over-year. This was followed by service centers growing 1.1% sequentially and sales declining 5.7% year-over-year. Supply chain services grew 1.1% sequentially and declined 7.6% year-over-year.
Kent Yee: In terms of our business segments.
Kent Yee: <unk> pumping solutions grew three 2% sequentially and 21% year over year. This was followed by service centers grind, one 1% sequentially and sales declining five 7% year over year supply chain services grew one 1% sequentially and declined seven 6% year over year.
Kent Yee: In terms of our service centers, regions within our service center business segment which experience sequential as well as year-over-year sales growth include the South Atlantic and North Central. From a product and geographic perspective, our Canadian Rotating Equipment and Seal Division also experience sequential and year-over-year sales growth. Other notable regions that contributed during the quarter include the Southwest, South Central, and South Rocky. In terms of innovative pumping solutions, we continue to experience increases in energy-related pathways.
Kent Yee: In terms of our service centers regions within our service Center business segment, which experienced sequential as well as year over year sales growth include the south Atlantic and North Central.
Kent Yee: From a product and geographic perspective, our Canadian rotating equipment and seal division also experienced sequential and year over year sales growth. Other notable regions that contributed during the quarter include the southwest South central and South Rocky region.
Kent Yee: In terms of innovative pumping solutions, we continue to experience increases in the energy related backlog.
Kent Yee: Our Q1 Energy Related Average Backlog grew 2.7% over our Q4 Average Backlog and continues to be ahead of all our averages except for 2018 and 2019. The conclusion continues to remain that we are trending meaningfully above all notable sales levels, and we are moving towards 2018 and 2019 levels based upon where our backlog stands today. We have been experiencing strong organic sales growth within IPS, and we expect that to continue throughout 2024.
Kent Yee: Q1 energy related average backlog grew two 7% over our Q4 average backlog and continues to be ahead of all our averages except 2018 in 2019.
Kent Yee: The conclusion continues to remain that we are trending meaningfully above all notable sales levels and we are moving towards 2018, and 2009 2019 levels based upon where our backlog stands today, we have been experiencing strong organic sales growth within Ips and we expect that to continue throughout 2020 forward. We also see strength in.
Kent Yee: We also see strength in our IPS water backlog as it continues to grow due to a combination of organic and acquisition additions. Our IPS water backlog grew 11.8% over our Q4 ending backlog, excluding our two most recent water aquifers.
Kent Yee: Our Ips water backlog as it continues to grow due to a combination of organic and acquisition initiatives.
Kent Yee: Water backlog grew 11, 8% over our Q4 ending backlog, excluding our two most recent water acquisitions.
Kent Yee: Supply chain services performance primarily reflects a 1.1% increase sequentially and a decline year-over-year, which we mentioned in our Q4 and Q3 earnings calls, but it's primarily due to some facility closures with existing customers as well as the streamlining and efficiencies we brought to our new. As David mentioned, we will look for new customer additions as we move through 2024. Turning to our gross margins, DXP's total gross margins were 30 percent, a 55 basis point improvement over Q1 2023.
Kent Yee: Supply chain services performance, primarily reflects a one 1% increase sequentially and a decline year over year, which we mentioned in our Q4 and Q3 earnings call, but it's primarily due to some facility closures with existing customers as well as the streamlining inefficiencies to be brought to our new customers.
Kent Yee: David mentioned, we will look for new customer additions as we move through 2024.
Kent Yee: Turning to our gross margins Dxp's total gross margins were 30% or 55 basis point improvement over Q1 2023. This improvement is attributed to consistency of margins within service centers and innovative pumping solutions and the contribution from acquisitions at a higher overall relative gross margin versus our base <unk>.
Kent Yee: This improvement is attributed to consistency in margins within service centers and innovative pumping solutions and the contribution from acquisitions and a higher overall relative gross margin versus our base DXP business. That said, from the segment Mixed Sales Contribution, service centers contributed 69.9%.
Kent Yee: <unk> business.
Kent Yee: That said from a segment mix sales contribution service centers contributed 69, 9% supply chain services, 15% and innovative pumping solutions was 15, 1%.
Kent Yee: Supply Chain Services 15% and Innovative Pumping Solutions 15.1% in terms of operating income. Combined, all three business segments increased 16 basis points sequentially in business segment operating income margins of $1.3 million versus Q4 2023. This was primarily driven by improvements in operating income margins within service centers and supply chain services. The improvement in service centers reflects the impact of acquisitions at a higher relative operating income mark. Total DXP operating income was $29.1 million in Q1 2024.
Kent Yee: In terms of operating income.
Kent Yee: Bind all three business segments increased 16 basis points sequentially and business segment operating income margins of $1 $3 million versus Q4 of 2023.
Kent Yee: This was primarily driven by improvements in operating income margins within service centers and supply chain services.
Kent Yee: The improvement in service centers reflects the impact of acquisitions at a higher relative operating income margin.
Kent Yee: Total DXP operating income was $29 1 million in Q1 2012.
Kent Yee: Our SG&A for the quarter increased $5.1 million from Q1 2023 and $1.9 million from Q4 2023 to $94.8 million. The increase reflects normal seasonal amounts in terms of payroll taxes, insurance, and other administrative items, as well as the growth in the business and associated consent and compensation, and DXP investing in its people through merit and pay rates. SG&A, as a percentage of sales, increased 183 basis points year-over-year to 22.96%.
Kent Yee: Our SG&A for the quarter increased $5 1 million from Q1, 2023, and $1 9 million from Q4, 2023% to $94 8 million.
Speaker Change: Excuse me $94 eight the.
Kent Yee: The increase reflects normal seasonal amounts in terms of payroll taxes insurance and other administrative items as well as the growth in the business and associated incentive compensation and DXP investing in its people through merit pay raises SG&A as a percentage of sales increased to 183 basis points year over year to 22 nine.
Kent Yee: 10% to 90.
Kent Yee: 86% of sales turning to EBITDA.
Kent Yee: Turning to EBITDA, Q1 2024 adjusted EBITDA was 40.31, and adjusted EBITDA margins were 9.8%. It is worth noting that this is slightly below our recent 10% plus trends and reflects normal financial seasonality associated with higher payroll taxes, insurance, and associated items.
Kent Yee: 102024, adjusted EBITDA was $40 3 million.
Kent Yee: Adjusted EBITDA margin margins were nine 8%.
Kent Yee: It is worth noting that this is slightly below our recent 10% plus trends and reflects normal financial seasonality associated with higher payroll taxes.
Kent Yee: Insurance and associated.
Kent Yee: Additionally, it reflects some unique one-time items associated with acquisitions and excess legal. We still continue to expect a benefit from the fixed cost SG&A leverage we experience as we grow sales and anticipate this will pick up as we move through fiscal 2020. In terms of EPS, our net income for Q1 was $11.3 million; our earnings per diluted share for Q1 2024 were $0.67 per share versus $0.95 per share last year. Conservatively adjusting for some of the one-time items just previously mentioned, earnings per diluted share for Q1 2024 were $0.74 per share. Turning to the balance sheet and cash flow, in terms of working capital, our working capital decreased $3.2 million from December to $268.9 million. As a percentage of sales, this amounted to 16.1%.
Kent Yee: Additionally, and reflects some unique.
Kent Yee: Onetime items associated with acquisitions and excess legal expense.
Kent Yee: Still continues to expect to benefit from the fixed costs SG&A leverage we experienced as we grow sales and anticipate this will pick up as we move through fiscal 2024.
Kent Yee: In terms of EPS, our net income for Q1 was $11 3 million or <unk>.
Kent Yee: Earnings per diluted share for Q1, $2024 67 per share versus <unk> 95 per share last year.
Kent Yee: <unk> adjusting for some of the onetime items just previously mentioned earnings per diluted share for Q1, 2024 was <unk> 74 per share.
Kent Yee: Turning to the balance sheet and cash flow in terms of working capital our working capital decreased $3 2 million from December to $268 9 million as a percentage of sales this amounted to 16, 1%.
Kent Yee: That is three consecutive quarters of working capital creating cash for DXP or a source of cash of $38.1 million, a decline as a percentage of sales. In terms of cash, we had $139.7 million in cash on the balance sheet as of March 31st. This is a decrease of $33.4 million compared to the end of Q4 and reflects the three acquisitions to be closed during the quarter, Hennessey, Tappie, and Proceal, as well as $16.8 million in share repurchase.
Kent Yee: That is three consecutive quarters of working capital, creating cash for DXP or source of cash of $38 1 million and a decline as a percentage of sales.
Kent Yee: In terms of cash we had $139 7 million in cash on the balance sheet as of March 31.
Kent Yee: This is a decrease of $33 1 million $33 4 million excuse me compared to the end of Q4 and reflects the three acquisitions, we closed during the quarter NFC Kathy and proceeds.
Kent Yee: Well at $16 8 million in share repurchases in terms of Capex capex in the first quarter was $2 9 million or a decrease of $2 3 million compared to Q4 2023, and the 910000 decrease versus Q1 of 2023.
Kent Yee: In terms of CapEx, CapEx in the first quarter was $2.9 million, or a decrease of $2.3 million compared to Q4 2023 and a $910,000 decrease versus Q1 2023. Last year, CapEx increased versus 2022, and like this time last year, we continue to expect CapEx to pick up in 2024 versus 2023. We are continuing to make investments in our business, software, our facilities, and operations for our employees. As we move forward, we will continue to invest in the business as we focus on growth, and we'll communicate these investments as appropriate. Turning to free cash flow, free cash flow for the first quarter was $24.1 million, or an increase of 6.4% versus Q1 2023.
Kent Yee: Last year Capex increase versus 2022.
Kent Yee: This time last year, we continue to expect Capex to pick up in 2024 versus 2023, we are continuing to make investments in our business software our facilities and operations for our employees as we move forward. We will continue to invest in the business as we focus on growth and we will communicate these investments as appropriate.
Kent Yee: Turning to free cash flow free cash flow for the first quarter was $24 1 million an increase of six 4% versus Q1 2023. This primarily reflects improvements in profitability along with a reduction in receivable days and continued management of our project work, which we have highlighted in the past has required investment to inventory product and cost and access.
Kent Yee: This primarily reflects improvements in profitability along with a reduction in receivable days and continued management of our project work, which we have highlighted in the past as requiring investment in inventory, product, cost, and accessibility. That said, we continue to focus on tightly managing this aspect of our business from a cash flow perspective and look to align billings with the investment. Return on Invested Capital, our ROIC at the end of the first quarter was 36.3%, and should continue to improve as we drive margins in operating leverage and improve our run rate EBITDA.
Kent Yee: That said, we continue to focus on tightening managing this aspect of our business from a cash flow perspective, and look to align billings with the investment.
Kent Yee: Return on invested capital on ROIC at the end of the first quarter with 36, 3% and should continue to improve as we drive margins and operating leverage and improve our run rate EBITDA.
Kent Yee: As of March 31st, our fixed charge coverage ratio was 2.3 to 1, and our secured leverage ratio was 2.3 to 1, with a covenant EBITDA for the last 12 months of 179.3 million. Total debt outstanding on March 31st was $547.3 million.
Kent Yee: As of March 31st our fixed charge coverage ratio was two three to one and our secured leverage ratio of two three to one with a covenant EBITDA for the last 12 months of $179 3 million.
Kent Yee: Total debt outstanding on March 31st was $547 3 million.
Kent Yee: In terms of liquidity, as of the first quarter, we were undrawn on our ABL with $3.1 million in letters of credit, with $131.9 million of availability and liquidity of $271.6 million, including $139.7 million in cash. DXP is poised to execute en route and would anticipate closing another acquisition before the quarter ends. In terms of acquisitions, we closed on three acquisitions during the quarter: Tennessee Mechanical Sales, Cappian Associates, and
Kent Yee: In terms of liquidity as of the first quarter, we were undrawn on our ABL was $3 1 million in letters of credit with $131 9 million of availability and liquidity of $271 6 million, including $139 $7 million in cash.
Kent Yee: <unk> is poised to execute on our App.
Kent Yee: We anticipate closing another acquisition before quarter end.
Kent Yee: In terms of acquisitions, we closed we closed on three acquisitions during the quarter and as the mechanical sales copy and associates and proceed.
Kent Yee: We look forward to them fully reporting with us for the second quarter of 2024. Hennessey and Kathy provide DXP with leading platforms within the municipal, industrial, water, and wastewater industries, and ProSeal provides DXP with a leading rotating equipment and seal provider in Michigan and Alaska. Welcome to DXP, Hennessey, Kathy, and ProSeal.
Kent Yee: We look forward to them fully reporting with us for the second quarter of 2024, Tennessee, and Cathie provide DXP with leading platforms within the municipal industrial water and wastewater industry and proceeds provides DXP with a leading rotating equipment provider in Michigan in Alaska welcome to DXP Hennessy Kathy and proceed.
Kent Yee: DXP's acquisition pipeline continues to remain active, and the market continues to present compelling opportunities. As we discussed during the Q4 earnings call, we anticipated closing three acquisitions before midyear, and we have accomplished that goal as of Q1, and we have a letter of intent and plan on closing another acquisition before the second quarter ends, bringing that to a total of four acquisitions by the end of the second quarter. That said, we remain comfortable with our ability to execute on our pipeline, and valuations continue to remain reasonable. Regarding capital allocation, we repurchased or returned $16.8 million to shareholders via shareholder purchases in Q1.
Kent Yee: Dxp's acquisition pipeline continues to remain active in the market continues to present compelling opportunities as we discussed during the Q4 earnings call. We anticipated closing three acquisitions before mid year and we have accomplished that goal as of Q1, and we have a letter of intent and plan on closing another acquisition before the second quarter and bringing that to a total.
Kent Yee: All four acquisitions by the end of the second quarter that said, we remain comfortable with our ability to execute on our pipeline and valuations continue to remain reasonable regarding capital allocation, we repurchased a returned $16 8 million to shareholders via share repurchases in Q1 as previously mentioned, we will continue to be opportunistic as.
Kent Yee: As previously mentioned, we will continue to be opportunistic as we move through 2024 and support our shareholders as we move through the cycle. In summary, our resilient and critical MRO supply chain solutions combined with our project capabilities and exposure to sustainable secular trends including water and wastewater and various energy markets will drive our future sales and profits. Heading into 2024, we refreshed our balance sheet, which has allowed us to continue to invest in the business, both organically and through acquisitions, while also returning capital shareholding.
Kent Yee: We move through 2024 and support our shareholders as we move through cycles.
Kent Yee: In summary, our resilient and critical at MRO supply chain solutions, combined with our project capabilities and exposure to the sustainable secular trends, including water and wastewater and various energy markets will drive our future sales and profitability.
Kent Yee: Going into 2020, or we refreshed our balance sheet, which has allowed us to continue to invest in the business both organically and through acquisitions. While also returning capital to shareholders. We are excited about the future. We will keep our eyes focused on those things we can control and what is ahead of us.
Kent Yee: We are excited about the future. We will keep our eyes focused on those things we can control and what is ahead of us. We are excited because there is still substantial value embedded in DXP. We look forward with great confidence to a future of sustained growth and market performance. I will now turn the call over to questions.
Kent Yee: We are excited because there is still substantial value embedded DXP.
Kent Yee: We look forward with great confidence to the future of sustained growth and market performance.
Speaker Change: I will now turn the call over for questions.
Operator: Thank you, and as mentioned, the floor is now open for questions. To ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via the loudspeaker on your device, please pick up your handset and ensure your phone is not on mute. Your first question comes from the line of Cole Cousins from Stevens. Please go ahead.
Speaker Change: Thank you and as mentioned the floor is now open for questions to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue if.
Operator: If you would like to withdraw your question simply press Star one again.
Operator: If you are called upon to ask you a question that all listening via loud speaker on your Tobias. Please pickup your handset and ensure your phone is not on mute.
Cole Alexander Couzens: Your first question comes from the line of KOL cousins from Stephens. Please go ahead.
Cole Alexander Couzens: Hey guys, thanks for taking my questions. Hey Cole, how are you? Doing well. I just wanted to start here on ADS trends. If you mind, can you walk through kind of what you're seeing quarter to date in April and early May on both an organic and an inorganic basis?
Cole Alexander Couzens: Hey, guys. Thanks for taking my questions.
Cole: Hey, Paul how are you.
Cole Alexander Couzens: So.
Cole Alexander Couzens: Doing well just wanted to start here on Aaas trends.
Cole Alexander Couzens: <unk>.
Cole Alexander Couzens: Can you walk through kind of what you're seeing quarter to date.
Cole Alexander Couzens: In April and early May on both an organic and inorganic basis.
Kent Yee: You know, what I'll do is, Cole, I'll walk you through kind of the quarter and through April. I don't have a view given we're only nine days into May and a fair amount of our sales per business day usually come between the mid to the back end of the month. So I wouldn't want to, you know, forecast anything there.
Cole Alexander Couzens: Okay.
Cole: What I'll do is I'll call I'll walk you through kind of.
Kent Yee: The quarter.
Kent Yee: And through April I don't I don't have a view given we're only nine days into May and a fair amount of our sales per business day, usually come between the mid to the back end of the month.
Cole: Got it.
Kent Yee: Okay forecast anything there but.
Kent Yee: But Now I'll get to the second half of your question, which was kind of the trends maybe on an organic versus an acquisition basis. Going back to January, sales per business day were $5.9 million, February was $6.3 million, and then March, as I mentioned in the script, was $7.5 million. April was $6.8 million per day, so April is up 2.7 percent year over year on a comparative basis. Excluding, if you will, some of our recent acquisitions, meaning ProSeal, Cappy, Hennessey, Alliance, Ford of Valve, and Riordan, the trend on sales per business day was $5.8 million in January, $6.2 million in February, $7.2 million in March, and then $6.4 million in April.
Kent Yee: And then I'll get to your second half of your question, which was kind of.
Kent Yee: Kind of the trends maybe on an organic versus the acquisition basis, If you will.
Cole Alexander Couzens: And how much of that is, is that pretty reflective of typical seasonality, in your view?
Kent Yee: Going back from January sales per business day were $5 9 million February was six three.
Cole Alexander Couzens: In March as I mentioned in the script was seven five April was $6 8 million per day. So April was up two 7% year over year on a comparative basis.
Cole Alexander Couzens: Excluding if you will some of our recent acquisitions, meaning pro sale copy Hennessy Alliance, Florida valve and rewritten.
Cole Alexander Couzens: The trend on a sales per business day was $5 8 million in January $6 2 million in February seven $2 million in March and then $6 4 million in April so.
Cole Alexander Couzens: And how much of that is.
Cole Alexander Couzens: Is that pretty reflective of typical seasonality in your view.
Kent Yee: Yeah, I think, you know, what we saw, if you were to look at the time frame last year, you always get a quarter-end push in March. And so we experienced that again this year. And then as we jumped into April, right, we kind of trended above, I'll call it, that Q1 average as we moved into Q2. And so that's, we're following that, not in the same quantities as last year, you know, but we are still growing year over year from a sales per business standpoint.
Cole Alexander Couzens: Yes, I think what we saw if you were to look at.
Kent Yee: The timeframe last year, you always get a.
Cole Alexander Couzens: Okay, great. And do you mind reminding us how many selling days you're assuming here in 2Q and maybe for the remainder of the year as well?
Kent Yee: Quarter end push in March.
Cole Alexander Couzens: And so we experienced that again this year and then as we jumped into April right.
Cole Alexander Couzens: We kind of trend above I'll call. It that Q1 average as we move into Q2 and so we're following that not in the same quantum's as last year.
Cole Alexander Couzens: But we are still.
Cole Alexander Couzens: Growing year over year from a sales per business day perspective.
Cole Alexander Couzens: Okay, Great and do you mind, reminding us how many selling days you're assuming here in.
Speaker Change: <unk> and maybe for the remainder of the year as well.
Kent Yee: Yeah, so we had 63 selling days, obviously, in Q1, which, by the way, was one less day than this time last year. So, you know, on a comparative basis, you do need to factor that in, just in terms of the performance year over year.
Cole Alexander Couzens: Yes.
Speaker Change: So we had 63 selling days, obviously in Q1, which by the way was one less day than this time last year.
Kent Yee: On a comparative basis, you do need to factor that in just in terms of the performance year over year and then your second question just kind of for Q2 Q2, we're forecasting 64 days.
Kent Yee: And then your second question, just kind of for Q2, Q2, we're forecasting 64 days for Q2, with 22 already happening in there. You know, for the year, it's usually around 250, 252 days. I literally put pen to pad, but it's usually, the days usually fall out between 252 and 253.
Kent Yee: For Q2 with 22 already happening in April.
Kent Yee: For the year, it's usually around $250 252 days I'm literally put pen to pad, but it's usually the day usually.
Kent Yee: Days, usually fall out between $2, 52% and 253.
Kent Yee: Okay.
Cole Alexander Couzens: And then last one on revenue. I think it was down a little bit year over year. What are some of the underlying end markets or product categories that were softer here on a year-over-year basis? And then on a sequential basis, it seems like demand is broadly consistent with the first quarter, but is there anything notable in any market or product category that's changed versus last quarter?
Kent Yee: And then last one on revenue I think it was down a little bit year over year.
Cole Alexander Couzens: What are some of the underlying end markets or product categories that were softer here on a year over year basis.
Cole Alexander Couzens: And then on a sequential basis. It seems like demand is broadly consistent with the first quarter, but is there anything notable in any market or product category, that's changed versus versus last quarter.
Kent Yee: Yeah, and I don't know if David has any insights here, but from my perspective, kind of what we did see was, you know, typical. We do have project work, which we talk about pretty frequently in our innovative pumping solutions segment. And so I think, you know, it's always hard to time absolutely when some of those jobs will ship. And once again, our backlog is pretty robust. So I think, I don't know if it's necessarily market-driven. What I'm getting at is so much just some projects, whether water, wastewater, or whatever we call it our energy-related, you know, you know, didn't quite shift a year in.
Speaker Change: Yes, and I don't know if David has any insights here, but.
Kent Yee: From my perspective kind of what we did see was typical we do have project work work, which we talk about.
Kent Yee: I'm pretty frequently in our innovative pumping solutions segment, and so I think.
Kent Yee: It's always hard to time, absolutely when some of those jobs will shape and once again, our backlog is pretty robust. So I think I don't know if it's necessarily end market driven is where I'm getting that is so much just some projects where their water wastewater our call it our energy related.
Kent Yee: Didn't quite shifted yearend and so some of those will happen now once again not to get into details, but some of that is on percentage of completion and some of that.
Kent Yee: And so some of those will happen now. Once again, not to get into details, but some of that's based on the percentage of completion, and some of that is just the project work hasn't started. But I don't know if David has any insights there.
Kent Yee: The project work hasn't started but I don't know if David has any insights there.
David R. Little: Well, there's not any deviation around product categories, other words, pumps or... Consistent, safety was consistent. [inaudible] Actually up a little bit, but it was pretty much..., pretty consistent across the board in product category.
David: Well there is not any deviation around product categories. Other words pumps were.
David R. Little: Consistent.
David: Safety was consistent.
David R. Little: Metalworking.
David: Actually up a little bit, but it was pretty much <unk>.
David: Consistent across the board on product category.
Cole Alexander Couzens: Okay, that's helpful. And then across each of the three segments, as we kind of move into 2Q here, just directionally, kind of how are you guys expecting revenue to progress on a sequential basis?
David: Okay. That's helpful and then across each of the three segments as we kind of move into <unk> here, just directionally kind.
Cole Alexander Couzens: How are you guys expecting revenue to progress on a sequential basis from here.
David R. Little: So just quickly, it's almost every quarter that the first quarter is better than the second quarter, and the third quarter is better than the second quarter. So from a, That almost happened.
Cole Alexander Couzens: So just quickly it's almost every quarter.
David R. Little: The first quarter.
David R. Little: And then second quarter is better than the first quarter in the third quarter is better than the second quarter. So from promote.
David R. Little: That almost happens.
David R. Little: Invariably, unless there's a big swing in days or something happens every day. So, I don't know if that's totally your question, but I do want to point that out. Yes, and that's no, and I'm, and I'm.
David R. Little: Invariably unless there is a big swing in days or something.
David R. Little: <unk> every time, so I don't know if thats totally your question, but other want to point that out.
David R. Little: And that said no and then Alberto.
Kent Yee: Oh, cool. I was gonna say I agree with David, you know, we formally, obviously, as everyone knows, we don't necessarily give guidance. That said, I think, you know, I think the trends we see, right? If you go back to the sales per business day, January was up, year-over-year, 4.5 percent. February was up 1.9 percent year-over-year. March was technically down slightly, 5 percent, but then April, and we're back 2.7 percent.
Speaker Change: I would call I'll, just say I agree with David.
Kent Yee: We formally obviously as everyone knows we don't.
Kent Yee: We don't necessarily give you a guidance that said I think.
Kent Yee: I think the trends we see right. If you go back to the sales per business day January was up <unk>.
Kent Yee: Year over year, four 5% February was up one 9% year over year March was technically.
Kent Yee: Down slightly 5%, but then April we're back to 7% I guess the point being is I think if you kind of just kind of blend that a little bit together, what youre, what youre seeing is that on a year over year basis.
Kent Yee: I guess the point is, I think if you kind of blend that a little bit together, what you're seeing is that on a year-over-year basis, you know, we're trending in the—I'll call it in the 1.5 to 2 percent range from an actual performance basis. And I think, all things being equal, as we look to the year, we don't see any big shifts.
Kent Yee: We're trending in the I'll call it in the one 5% to 2%.
Kent Yee: Our range from actual performance basis, and I think all things being equal.
David R. Little: Once again, we're acquisitive, you know, that's always the comment. We're in the business of buying businesses and growing DXP, but we can't time those things, and we announce them when appropriate. And, you know, a little color on what I said. Kent took a broader picture. But part of that's just simply our manufacturers trying to ship everything towards the end of the quarter because we're all so disciplined around quarters and so everybody's shipping things and so we actually do quite a bit of business in the last two days, a month, and then the last two days of the quarter get a little crazy too. So, I'll just give you a reason why.
Kent Yee: As we look to the year, we don't see any big shifts once it get more acquisitive.
David R. Little: That's always the comment where we're in the business of buying business isn't growing DXP.
David R. Little: But we can't time, those things and we announce those when appropriate.
David R. Little: Little a little color on what I said.
Kent Yee: Yes, Doug a broader picture, but on what I said is part of that is just simply our manufacturers Brian the ship everything towards the end of the quarter those were all.
David R. Little: So discipline around quarters, and so everybody's shipping things and so we actually do have quite a bit of business from last few days.
David R. Little: A month and then the last two days of the quarter gets a little crazy too so.
David R. Little: I'll just give you a reason for it.
Cole Alexander Couzens: Yep, that's helpful. And then just in terms of EBITDA margin, I know you guys kind of acknowledged this, but 10% of the goal, in our view, you're kind of in that range in Q1. And I know there's some seasonality impacting it in Q1, but going forward here in Q2, do you guys think that 10% level is attainable, or should it move higher or lower for any reason?
Speaker Change: Yes, that's helpful.
Cole Alexander Couzens: And then just in terms of EBITDA margin I know you guys kind of acknowledged this but 10% the goal and our view where do you kind of in that range in Q1.
Cole Alexander Couzens: And I know theres, some seasonality impacting it.
Cole Alexander Couzens: In Q1.
Cole Alexander Couzens: But going forward here in Q2 do you guys think that 10% level is attainable.
Cole Alexander Couzens: Or should it move higher or lower for any reason.
Kent Yee: Yeah, we definitely think that 10% coal is attainable. You hit it spot on. There was some seasonality and just some one-time unique costs, which we conservatively, and I'd empathize conservatively, you know, included as an ad back to us, adjusted EBITDA, and that put us at 9.8%. That said, you know, as we move into Q2, Q3, and Q4, 10% is definitely attainable given our mix today, and we would see that materializing.
Cole Alexander Couzens: Yes, we definitely think the 10% call it is attainable.
Kent Yee: You hit it spot on there was there was some seasonality and just some one time unique cost, which we conservatively and I'd emphasize conservatively.
Kent Yee: Included as add back to us adjusted EBITDA.
Kent Yee: And that put us at nine 8%.
Kent Yee: That said as we.
Kent Yee: We move into Q2, and Q3 and Q4.
Kent Yee: 10% definitely attainable given our mix today.
Kent Yee: And we would see that netback that materializing.
Cole Alexander Couzens: And to expand on that a little bit, you just said, given your mix, is most of that going to be on the gross margin line? I think you've seen some good improvement there, or do you think you have to try to leverage as well?
Speaker Change: And to expand on that a little bit you just.
Cole Alexander Couzens: Given your mix is most of that going to be on the gross margin line I think you've seen some good improvement there.
Cole Alexander Couzens: Or do you think yes.
Cole Alexander Couzens: Drive leverage as well.
Kent Yee: Yeah, I mean, hey, we've had consistent 30% plus gross margins here more recently, and that's definitely contributed to the lift in EBITDA margins. But we also get operating leverage as we grow the business and grow sales, per my comments in my script. And I think we'll continue to see that once again.
Speaker Change: Yes, I mean, hey, we've had consistent 30% plus gross margins.
Kent Yee: Here more recently and Thats definitely contributed to.
Kent Yee: The list.
Kent Yee: <unk>.
Kent Yee: EBITDA margins, but we also get.
Kent Yee: The operating leverage as we grow the business and grow sales per my comments.
Kent Yee: In my script, but.
Kent Yee: We expect to continue to get some sales growth, and with that, you get some operating leverage out of the system. You know, the wins that are always challenging for everybody, not unique to us, are, you know, there's not just inflation. Inflation from a product perspective is good for DXP. But from a people perspective, you know, we've got to work through that as merit and pay raises come through the system. And we've done a good job thus far of managing that. But those pressures have been pretty consistent over the last 6 to 12 to 9 months, very easily. So
Kent Yee: And I think we'll continue to see that once again, we expect to continue to get some some sales growth and with that you get some operating leverage out of the system.
Kent Yee: The wins that are always challenging for everybody not unique to us.
Kent Yee: There is not just inflation inflation from a product perspective is good for DXP, but from a people perspective, we've got to work through that as merit pay raises come through the system and we've done a good job thus far of managing that but those pressures have been pretty.
Kent Yee: Consistent over the last six to 12 to nine months very easily so.
David R. Little: So to add to that a little bit, there's a big push to get incremental gross profit margins up and And so not only to pass on inflation and the cost of products going up, but actually to get a little more for ourselves because our people cost is going up, etc. Things are going up. So we're pushing value, and then consistent with that on capital allocation, what we're doing. Our acquisitions in air compressors and water have higher gross profit margins and higher dividend margins. Let's help him.
Kent Yee: So to add to that a little bit of.
David R. Little: There was a big push to.
David R. Little: Get incremental gross profit margins up.
David R. Little: And.
David R. Little: And so not only to pass on inflation and cost of product going up but actually too.
David R. Little: Give a little more for ourselves because our people cost is going up and et cetera things are going up so were pushing.
David R. Little: Value and then consistent with that of capital allocation is we're doing.
David R. Little: Our acquisitions in air compressors and water.
David R. Little: Or have higher gross profit margins and higher EBITDA margins.
David R. Little: So thats healthy.
Cole Alexander Couzens: Got it. And we'll, I'll come back to capital allocation in a little bit. But just at a higher level, too, I think you guys have talked more recently, last quarter, and I think this quarter in the press release, about some growth initiatives here. Can you walk through what exactly those are and maybe what inning we're in? And if everything goes right and you can execute the playbook, kind of what do you hope to achieve?
Speaker Change: Got it.
David R. Little: <unk>.
Cole Alexander Couzens: I'll come back to capital allocation on a little bit.
Cole Alexander Couzens: But just higher level two I think you guys have more recently last quarter and I think this quarter in the press release, you guys talked about.
Cole Alexander Couzens: Some growth initiatives here can.
Cole Alexander Couzens: Can you walk through what exactly those are and maybe what inning, we're in and if everything goes right and you can execute the playbook kind of what you hope to achieve.
Cole Alexander Couzens: By executing them.
David R. Little: Well, that's an interesting question. I'm not.
Speaker Change: Well, that's an interesting question.
David R. Little: Not.
David R. Little: I'm 100% sure I want to tell the world what I'm doing to grow sales. Uh, big one on that. And so we don't talk about that. I think there are some things that are just obvious.
David R. Little: 100% sure I want to tell the world what I'm doing the gross sales.
David R. Little: Big Illinois.
David R. Little: And.
David R. Little: So we don't we don't talk about that I think some things that are just obvious.
David R. Little: Well, I'll talk about a little bit and that's a team of people that are trying to capture national accounts on the rotating equipment side of our business. You know, every motion, AIT, people like that do national accounts on bearings and power transmission. So we're in the process of doing that from a pump or rotating equipment scenario. That's working for us. Sometimes it doesn't always lead to a 100% national account, but in every case, it's creating incremental business.
David R. Little: I'll talk about a little bit in that.
David R. Little: A team of people that are trying to capture national accounts on the rotating equipment.
David R. Little: For our business.
David R. Little: Motion piece.
David R. Little: People like that do national accounts on bearings and power transmission. So we're we're in that process of doing that.
David R. Little: From a.
David R. Little: Pump our rotating equipment scenario.
David R. Little: That's that's working for us sometimes it doesn't always lead to.
David R. Little: 100% National account, but in every case, it's creating incremental business for us.
David R. Little:
David R. Little: [inaudible] We're also, again, I'm not going to tell you what, but we're adding products and Product Capabilities. And that's incrementally working, and it's something that is consistent with the same customer, the same product, it's an attachment to that product, and so it's, it's being readily accepted by our existing sales force, and so there's not really a lot of expense added to doing it, and so that is incrementally helping us. And then, You know, we're all the time, and Supply Chain Services is a really long It's a large house.
David R. Little: We're also.
David R. Little: Again, I'm not going to tell you what we're adding.
David R. Little: Product.
David R. Little: And product capabilities.
David R. Little: And that's incrementally working in.
David R. Little: And it's something that.
David R. Little: Is.
David R. Little: Consistent with the same customer the same product.
David R. Little: And the attachment to that product and so it's it's being ready.
David R. Little: Readily accepted by our existing sales force.
David R. Little: And so theres not really a lot of expense added to doing it and so that is incrementally.
David R. Little: Helping us and then.
David R. Little: We're all the time and supply chain services.
David R. Little: This is a really long sale, but when you get one.
David R. Little: It's $50 or $60 million. So it's it's.
David R. Little: It's a large sale.
David R. Little: So, they don't happen every day. It's a very lumpy business in that sense, but we're always pushing integrated supply through our supply chain service. Offering and and We've had a little dry spell. We've got a lot of opportunities on the table, and we hope to get some of those closed. And if they are, they're pretty significant. And then
David R. Little: Don't happen every day is a very lumpy business in that sense, but.
David R. Little: So we're always pushing integrated supply through our supply chain service.
David R. Little: Offering and.
David R. Little: We've had a little garage Bill we've got a lot of opportunities on the table and we hope to get some of those.
David R. Little: Those then that they are they're pretty significant.
David R. Little:
David R. Little: And then.
David R. Little: You know, we're just always fighting the B2B channel and Spending, you know, a lot of money on content development, etc. Don't flat-fire sales as an e-commerce company, more by productivity, company, designed to help make it easier for our customers to do business with us. So that's always in the works, getting something?
David R. Little: We're.
David R. Little: Always fighting the.
David R. Little: The.
David R. Little: B to B channel and.
David R. Little: A lot of money on content development et cetera.
David R. Little: Classify ourselves as an E Commerce company.
David R. Little: Or by productivity.
David R. Little: Company.
David R. Little: Designed to help that make it easier for our customers to do business with us so.
David R. Little: That's.
David R. Little: That's always in the works.
David R. Little: Yes.
Kent Yee: No, I mean, yeah, the only thing I'd add there, Cole, is that obviously, we complement that organic growth with acquisitions. And so I think, you know, when it comes to, you know, Answering your question around our growth initiatives, we do think, for strategic reasons kind of here, we don't disclose less, you know, the world's gotten bigger. Copycat-ish is the best way to put it, and so we strategically take the position of, Yes, articulating that we're always focused on growth.
David R. Little: Getting something done.
Kent Yee: Yes, the only thing I'd add there Cole is then obviously, we complement that organic growth with acquisitions and so I think when it comes to.
Kent Yee: No.
Kent Yee: Answering your question around our growth initiatives.
Kent Yee: We do think for strategic reasons kind of here and there.
Kent Yee: We we disclosed last the world Scott.
Kent Yee: Copycat ish.
Kent Yee: The best way to put it in so.
Kent Yee: We strategically take the position of Av.
Kent Yee: Yes, articulating that we're always focused on growth, we view ourselves as a growth company.
Kent Yee: We view ourselves as a growth company. We always have organic plans if people know DXP, but we also do that through acquisitions, but absolute disclosure given other strategics, private equity, et cetera. I think David hit it right on the nose, so
Kent Yee: And we always have organic plans if people know Dx people, we also do that through acquisitions.
Kent Yee: But the absolute disclosure given.
Kent Yee: Other strategics.
Kent Yee: That equity et cetera.
Kent Yee: I think David hit it right on the nose so okay.
Cole Alexander Couzens: Great. That's a good color. I completely understand that.
Speaker Change: Okay, great that's good color.
Cole Alexander Couzens: And completely understand that.
Cole Alexander Couzens: And lastly, just to circle up on capital allocation, you all have done a good job executing on some deals here, and it sounds like there's more in the pipeline. Is there any more color you can provide on what those deals look like? I know you mentioned earlier in the call that some of your diversification efforts have reaped a lot of benefits, so just any color in terms of size or end market would be appreciated.
Speaker Change: And lastly, just to circle up on capital allocation.
Cole Alexander Couzens: <unk> done a good job executing on some deals here and it sounds like there is.
Cole Alexander Couzens: More on the pipeline.
Cole Alexander Couzens: Is there any more color you can you can provide kind of on what those deals look like I know you mentioned earlier on the call that kind of diversification efforts.
Cole Alexander Couzens: Rethought benefit so just any any color in terms of size or end market would be would be appreciate it.
Kent Yee: Yeah, yeah. So, I'll start with the latter. You know, from AMRCA's perspective, everyone knows we've had a real push on water-wastewater. So, I'll call it really, very likely towards more Q3, Q4. We'll have, you know, one to two on the water-wastewater side, and continue to close. And then, kind of, one of our more recent themes is we found some nice, I'll call it down the fairway, rotating equipment focused industrial type distributors.
Speaker Change: Yes, so I'll start with the latter from end market perspective, everyone knows we've had a real push on water wastewater.
Kent Yee: So I'll call it really very likely towards more Q3 Q4 will have.
Kent Yee: One to two on the water wastewater side continue to close and then kind of one of our more recent themes.
Kent Yee: As we found some nice I'll call it down the fairway rotating equipment focused industrial type distributors. So.
Kent Yee: So, the one likely to close before the end of Q2, it follows in that path. It will be just a nice tuck-in acquisition. We probably won't have a lot of fanfare around that one, just because it's very similar to like a pro seal, just in terms of relative size, you know, you know, closer to our average acquisition size of 25 to 35 million in revenue. But they have a very nice possibility.
Kent Yee: The one.
Kent Yee: Likely to close before.
Kent Yee: The end of Q2 it follows that path.
Kent Yee: And we will be just a nice tuck in acquisition, but we probably won't have a lot of fanfare around that one just because it's very similar.
Kent Yee: <unk> pro sale.
Kent Yee: Just in terms of relative size you know.
Kent Yee: Closer to our average acquisition size of 25% to $35 million of revenue, but they have very nice profitability. So.
Kent Yee: So, you know, they've got 10% plus EBITDA margins. And so, you know, we'll just kind of move forward with that. And people will start to see that early in our results in Q2, but then as we move into Q3 and Q4. So, you know, that's what I would say, just in terms of kind of the acquisition focus and what people will see over the short to medium term.
Kent Yee:
Kent Yee: They've got 10% plus EBITDA margins and so.
Kent Yee: We will just kind of move forward with that in and people will see that start to see that early in our results in Q2, but then as we move into Q3 and Q4 so.
Kent Yee:
Kent Yee: That's what I would say just in terms of kind of the acquisition focus in what people will see over the short to medium term.
Cole Alexander Couzens: Okay, great. I appreciate the time, guys. Thanks.
Speaker Change: Okay, Great I appreciate the time guys. Thanks.
Cole Alexander Couzens: Okay.
Operator: And this does close out our Q&A session. I would like to thank our speakers for today's presentation and thank you all for joining us. This concludes today's conference call. Enjoy the rest of your day. You may now disconnect.
Speaker Change: And this does close out our Q&A session I would like to thank as speakers for today's presentation and thank you all for joining US. This concludes today's conference call enjoy the rest of your day you may now disconnect.
Speaker Change: Now I would like to thank our speakers for today's presentation and thank you all.