UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


[			☒			]			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended ~~June 30, 2021~~March 31, 2022


[			☐			]			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from to

Commission file number 0-21513

DXP Enterprises, Inc.

(Exact name of registrant as specified in its charter)


Texas						76-0509661
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

5301 Hollister, Houston, Texas 77040

(Address of principal executive offices, including zip code)

(713) 996-4700


(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:


Title of Each Class	Trading Symbol	Name of Exchange on which Registered
Common Stock par value $0.01	DXPE	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ] Smaller reporting company [☐] Emerging growth company [☐]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [☐] No [X]

Number of shares of registrant's Common Stock outstanding as of ~~August 31, 2021: 18,570,840~~April 30, 2022: 18,642,621 par value $0.01 per share.

~~EXPLANATORY NOTE~~

DXP Enterprises, Inc. (collectively with its subsidiaries, the “Company”) filed Amendment No. 1 on Form 10-K/A (“Form 10-K/A”) to amend its Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 18, 2021 (“2020 Form 10-K”). This Form 10-Q should be read in conjunction with the Form 10-K/A, as filed with the SEC on October 22, 2021. The historical periods presented in this Form 10-Q reflect adjustments to the information presented in the Company’s previously-filed Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.

In addition, the Company's consolidated financial statements for the periods covered in the quarter and six-months ended June 30, 2020 have also been restated to correct certain immaterial adjustments. These adjustments primarily reflect proper cut-off for direct ship sales to customers and credit card payments, and adjustments for inventory obsolescence reserves.The impacts of the restatement on our Unaudited Condensed Consolidated Statements of Operations and Balance Sheets are detailed in Note 4 to the Notes to Unaudited Condensed Consolidated Financial Statements.

~~The Company is also revising its disclosures in Part I, Item 2, “Management's Discussion and Analysis of Financial Condition and Results of Operations” to reflect corresponding changes.~~

DXP ENTERPRISES, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

DESCRIPTION


Item		Page
PART I: FINANCIAL INFORMATION
	ITEM 1. Financial Statements	43
	a) Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income	43
	b) Unaudited Condensed Consolidated Balance Sheets	54
	c) Unaudited Condensed Consolidated Statements of Cash Flows	65
	d) Unaudited Condensed Consolidated Statements of Equity	76
	e) Notes to Unaudited Condensed Consolidated Financial Statements	87
	ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	1716
	ITEM 3. Quantitative and Qualitative Disclosures about Market Risk	2421
	ITEM 4. Controls and Procedures	2522

PART II: OTHER INFORMATION		2623
	ITEM 1. Legal Proceedings	2623
	ITEM 1A. Risk Factors	2623
	ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	2623
	ITEM 3. Default upon Senior Securities	2623
	ITEM 4. Mine Safety Disclosures	2623
	ITEM 5. Other Information	2624
	ITEM 6. Exhibits	2725
	Signatures	2826

PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

DXP ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(in thousands, except per share amounts) (unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
				(Restated)				(Restated)
Sales	Sales	$	285,691	$	251,401	$	531,278	$	552,384	Sales	$	319,411	$	245,587
Cost of sales	Cost of sales	200,413		181,320		374,370		399,189		Cost of sales	224,527		173,957
Gross profit	Gross profit	85,278		70,081		156,908		153,195		Gross profit	94,884		71,630
Selling, general and administrative expenses	Selling, general and administrative expenses	70,432		62,943		135,829		134,738		Selling, general and administrative expenses	73,325		65,397
Income from operations	Income from operations	14,846		7,138		21,079		18,457		Income from operations	21,559		6,233
Other (income) expense	Other (income) expense	(105)		133		(535)		(701)		Other (income) expense	536		(430)
Interest expense	Interest expense	5,337		3,930		10,580		8,307		Interest expense	5,162		5,243
Income before income taxes	Income before income taxes	9,614		3,075		11,034		10,851		Income before income taxes	15,861		1,420
Provision for income taxes	Provision for income taxes	1,684		710		2,945		2,496		Provision for income taxes	3,332		1,261
Net income	Net income	7,930		2,365		8,089		8,355		Net income	12,529		159
Net loss attributable to noncontrolling interest	Net loss attributable to noncontrolling interest	(189)		(62)		(401)		(124)		Net loss attributable to noncontrolling interest	(113)		(212)
Net income attributable to DXP Enterprises, Inc.	Net income attributable to DXP Enterprises, Inc.	8,119		2,427		8,490		8,479		Net income attributable to DXP Enterprises, Inc.	12,642		371
Preferred stock dividend	Preferred stock dividend	22		22		45		45		Preferred stock dividend	23		23
Net income attributable to common shareholders	Net income attributable to common shareholders	$	8,097	$	2,405	$	8,445	$	8,434	Net income attributable to common shareholders	$	12,619	$	348

Net income	Net income	$	7,930	$	2,365	$	8,089	$	8,355	Net income	$	12,529	$	159
Currency translation adjustments	Currency translation adjustments	1,327		1,395		2,604		232		Currency translation adjustments	1,669		1,491
Comprehensive income	Comprehensive income	$	9,257	$	3,760	$	10,693	$	8,587	Comprehensive income	$	14,198	$	1,650

Earnings per share (Note 9) :
Earnings per share (Note 10) :										Earnings per share (Note 10) :
Basic	Basic	$	0.42	$	0.14	$	0.44	$	0.48	Basic	$	0.68	$	0.02
Diluted	Diluted	$	0.41	$	0.13	$	0.42	$	0.45	Diluted	$	0.65	$	0.02
Weighted average common shares outstanding :	Weighted average common shares outstanding :									Weighted average common shares outstanding :
Basic	Basic	19,291		17,735		19,239		17,719		Basic	18,534		19,186
Diluted	Diluted	20,131		18,575		20,079		18,559		Diluted	19,374		20,026

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

DXP ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data) (unaudited)


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
ASSETS	ASSETS			(Restated)		ASSETS
Current assets:	Current assets:					Current assets:
Cash	Cash	$	79,169	$	119,328	Cash	$	36,559	$	48,989
Restricted cash	Restricted cash	91		91		Restricted cash	91		91
Accounts Receivable, net of allowance of $7,948 and $8,628		193,657		166,941
Accounts Receivable, net of allowance of $7,176 and $7,759						Accounts Receivable, net of allowance of $7,176 and $7,759	228,213		218,137
Inventories	Inventories	103,447		97,071		Inventories	111,862		100,894
Costs and estimated profits in excess of billings	Costs and estimated profits in excess of billings	16,718		18,459		Costs and estimated profits in excess of billings	20,504		17,193
Prepaid expenses and other current assets	Prepaid expenses and other current assets	6,914		4,548		Prepaid expenses and other current assets	14,317		9,522
Federal income taxes receivable	Federal income taxes receivable	3,689		2,987		Federal income taxes receivable	1,019		9,748
Total current assets	Total current assets	403,685		409,425		Total current assets	412,565		404,574
Property and equipment, net	Property and equipment, net	52,456		56,899		Property and equipment, net	50,269		51,880
Goodwill	Goodwill	300,643		261,767		Goodwill	301,563		296,541
Other intangible assets, net	Other intangible assets, net	83,175		80,088		Other intangible assets, net	77,005		79,205
Operating lease ROU assets	Operating lease ROU assets	56,173		55,188		Operating lease ROU assets	56,267		57,221
Other long-term assets	Other long-term assets	5,448		4,764		Other long-term assets	4,646		4,806
Total assets	Total assets	$	901,580	$	868,131	Total assets	$	902,315	$	894,227
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Current maturities of long-term debt	Current maturities of long-term debt	$	3,300	$	3,300	Current maturities of long-term debt	$	3,300	$	3,300
Trade accounts payable	Trade accounts payable	80,208		64,849		Trade accounts payable	81,450		77,842
Accrued wages and benefits	Accrued wages and benefits	26,240		20,621		Accrued wages and benefits	23,515		23,006
Customer advances	Customer advances	7,426		3,688		Customer advances	13,498		12,924
Billings in excess of costs and estimated profits	Billings in excess of costs and estimated profits	2,300		4,061		Billings in excess of costs and estimated profits	5,328		3,581
Federal income taxes payable						Federal income taxes payable	104		—
Short-term operating lease liabilities	Short-term operating lease liabilities	17,512		15,891		Short-term operating lease liabilities	18,093		18,203
Other current liabilities	Other current liabilities	50,438		34,729		Other current liabilities	32,692		42,206
Total current liabilities	Total current liabilities	187,424		147,139		Total current liabilities	177,980		181,062
Long-term debt, net of unamortized debt issuance costs	Long-term debt, net of unamortized debt issuance costs	316,343		317,139		Long-term debt, net of unamortized debt issuance costs	315,030		315,397
Long-term operating lease liabilities	Long-term operating lease liabilities	37,907		38,010		Long-term operating lease liabilities	39,045		39,922
Other long-term liabilities	Other long-term liabilities	2,930		2,930		Other long-term liabilities	2,206		3,603
Deferred income taxes	Deferred income taxes	2,867		1,777		Deferred income taxes	7,927		7,516
Total long-term liabilities	Total long-term liabilities	360,047		359,856		Total long-term liabilities	364,208		366,438
Total liabilities	Total liabilities	547,471		506,995		Total liabilities	542,188		547,500
Commitments and contingencies (Note 10)		0		0
Commitments and contingencies (Note 11)						Commitments and contingencies (Note 11)	0		0
Shareholders' equity:	Shareholders' equity:					Shareholders' equity:
Series A and B preferred stock, $1.00 par value each; 1,000,000 shares authorized each	Series A and B preferred stock, $1.00 par value each; 1,000,000 shares authorized each	16		16		Series A and B preferred stock, $1.00 par value each; 1,000,000 shares authorized each	16		16
Common stock, $0.01 par value, 100,000,000 shares authorized; 18,558,674 and 19,208,067 outstanding		194		189
Common stock, $0.01 par value, 100,000,000 shares authorized; 18,633,271 and 18,580,364 outstanding						Common stock, $0.01 par value, 100,000,000 shares authorized; 18,633,271 and 18,580,364 outstanding	195		195
Additional paid-in capital	Additional paid-in capital	203,562		192,068		Additional paid-in capital	207,510		206,772
Retained earnings	Retained earnings	194,523		186,078		Retained earnings	215,103		202,484
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(15,409)		(18,013)		Accumulated other comprehensive loss	(27,613)		(29,282)
Treasury stock, at cost 1,014,053 shares at June 30, 2021		(29,174)		—
Treasury stock, at cost 1,243,535 shares at March 31, 2022						Treasury stock, at cost 1,243,535 shares at March 31, 2022	(35,024)		(33,511)
Total DXP Enterprises, Inc. equity	Total DXP Enterprises, Inc. equity	353,712		360,338		Total DXP Enterprises, Inc. equity	360,187		346,674
Noncontrolling interest	Noncontrolling interest	397		798		Noncontrolling interest	(60)		53
Total equity	Total equity	354,109		361,136		Total equity	360,127		346,727
Total liabilities and equity	Total liabilities and equity	$	901,580	$	868,131	Total liabilities and equity	$	902,315	$	894,227

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

DXP ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (unaudited)


	Three Months Ended March 31,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	12,529		159
Reconciliation of net income to net cash provided (used in) by operating activities:
Depreciation	2,517		2,480
Amortization of intangible assets	4,235		4,146
Gain on sale of property and equipment	—		(246)
Provision for credit losses	(147)		(682)
Fair value adjustment on contingent consideration	531		—
Amortization of debt issuance costs	458		427
Restricted stock compensation expense	370		380
Deferred income taxes	411		580
Net change in operating assets and liabilities	(18,224)		1,333
Net cash provided by operating activities	$	2,680	$	8,577

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(740)		(680)
Proceeds from the sale of property and equipment	—		1,297
Acquisition of business, net of cash acquired	(5,316)		—
Net cash (used in) provided by investing activities	$	(6,056)	$	617

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal debt payments	(825)		(825)
Preferred Stock dividends paid	(23)		(23)
Purchase of treasury stock	(8,315)		—
Payment for employee taxes withheld from stock awards	(159)		(517)
Net cash used in financing activities	$	(9,322)	$	(1,365)
Effect of foreign currency on cash	268		204
Net change in cash and restricted cash	(12,430)		8,033
Cash and restricted cash at beginning of period	49,080		119,419
Cash and restricted cash at end of period	$	36,650	$	127,452

Supplemental schedule of non-cash investing and financing activities:
Shares issued for acquisitions (Note 13)	$	527	$	—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

DXP ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~

~~(in thousands) (unaudited)~~

Six Months Ended June 30,
2021 2020
CASH FLOWS FROM OPERATING ACTIVITIES: (Restated)
Net income attributable to DXP Enterprises, Inc. $ 8,490 $ 8,479
Less: net loss attributable to non-controlling interest (401) (124)
Net income 8,089 8,355
Reconciliation of net income to net cash provided (used in) by operating activities:
Depreciation 5,132 5,747
Amortization of intangible assets 8,452 6,243
Gain on sale of property and equipment (246) —
Provision for credit losses (637) 434
Payment of contingent consideration liability in excess of acquisition-date fair value (145) (136)
Fair value adjustment on contingent consideration — 25
Amortization of debt issuance costs 854 937
Stock compensation expense 840 1,887
Deferred income taxes 1,068 188
Net change in operating assets and liabilities (7,201) 38,084
Net cash provided by operating activities $ 16,206 $ 61,764
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,526) (5,133)
Proceeds from the sale of property and equipment 1,297 123
Acquisition of business, net of cash acquired (44,435) (14,153)
Net cash used in investing activities $ (44,664) $ (19,163)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal debt payments (1,650) (16,250)
Issuance of Common Stock- shares sold in public market — 1,142
Payment for contingent consideration liability (955) (1,864)
Dividends paid (45) (45)
Purchase of treasury stock (8,769) —
Payment for employee taxes withheld from stock awards (585) (116)
Net cash used in financing activities $ (12,004) $ (17,133)
Effect of foreign currency on cash 303 (1,025)
Net change in cash and restricted cash (40,159) 24,443
Cash and restricted cash at beginning of period 119,419 54,326
Cash and restricted cash at end of period $ 79,260 $ 78,769
Supplemental schedule of non-cash investing and financing activities:
Shares issued for the acquisition of CVI (Note 12)
$ 8,859 $ —
Share repurchase agreement $ 20,405 $ —

~~The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.~~

~~DXP ENTERPRISES, INC. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF~~ EQUITY

(in thousands) (unaudited)

Series A preferred stock Series B preferred stock Common stock Paid-in capital Retained earnings Treasury stock Non controlling interest Accum other comp loss Total equity
Balance at March 31, 2020 (Restated) $ 1 $ 15 $ 175 $ 160,695 $ 221,693 $ — $ 1,084 $ (21,117) $ 362,546
Preferred dividends paid — — — — (22) — — — (22)
Compensation expense for restricted stock — — — 956 — — — — 956
Stock compensation expense — 27 — — — — 27
Tax related items for share based awards — — — (22) — — — — (22)
Issuance of common stock sold in public markets, net of commissions and fees — — — 1,142 — — — — 1,142
Currency translation adjustment — — — 296 (227) — — 1,395 1,464
Net income (As restated) — — — — 2,427 — (62) — 2,365
Balance at June 30, 2020 (Restated) $ 1 $ 15 $ 175 $ 163,094 $ 223,871 $ — $ 1,022 $ (19,722) $ 368,456

Series A preferred stock Series B preferred stock Common stock Paid-in capital Retained earnings Treasury stock Non controlling interest Accum other comp loss Total equity
Balance at December 31, 2019 (Restated) $ 1 $ 15 $ 174 $ 157,886 $ 215,664 $ — $ 1,146 $ (19,954) $ 354,932
Preferred dividends paid — — — — (45) — — — (45)
Compensation expense for restricted stock — — — 1,860 — — — — 1,860
Stock compensation expense — — — 27 — — — — 27
Tax related items for share based awards — — — (116) — — — — (116)
Issuance of shares of common stock — — 1 1,999 — — — — 2,000
Issuance of common stock sold in public markets, net of commissions and fees — — — 1,142 — — — — 1,142
Currency translation adjustment — — — 296 (227) — 232 301
Net income (As restated) — — — — 8,479 — (124) — 8,355
Balance at June 30, 2020 (Restated) $ 1 $ 15 $ 175 $ 163,094 $ 223,871 $ — $ 1,022 $ (19,722) $ 368,456


	Series A preferred stock		Series B preferred stock		Common stock		Paid-in capital		Retained earnings		Treasury stock		Non controlling interest		Accum other comp loss		Total equity
Balance at December 31, 2020	$	1	$	15	$	189	$	192,068	$	186,078	$	—	$	798	$	(30,029)	$	349,120
Preferred dividends paid	—		—		—		—		(23)		—		—		—		(23)
Restricted stock compensation expense	—		—		—		380		—		—		—		—		380
Tax related items for share based awards	—		—		—		(517)		—		—		—		—		(517)
Currency translation adjustment	—		—		—		—		—		—		—		1,491		1,491
Net income	—		—		—		—		371		—		(212)		—		159
Balance at March 31, 2021	$	1	$	15	$	189	$	191,931	$	186,426	$	—	$	586	$	(28,538)	$	350,610

Series A preferred stock Series B preferred stock Common stock Paid-in capital Retained earnings Treasury stock Non controlling interest Accum other comp loss Total equity
Balance at March 31, 2021 (Restated) $ 1 $ 15 $ 189 $ 191,931 $ 186,426 $ — $ 586 $ (16,736) $ 362,412
Preferred dividends paid — — — — (22) — — — (22)
Compensation expense for restricted stock — — — 460 — — — — 460
Tax related items for share based awards — — — (69) — — — — (69)
Issuance of shares of common stock — — 5 11,240 — — — — 11,245
Currency translation adjustment — — — — — — — 1,327 1,327
Purchase of treasury stock — — — — — (29,174) — — (29,174)
Net income — — — — 8,119 — (189) — 7,930
Balance at June 30, 2021 $ 1 $ 15 $ 194 $ 203,562 $ 194,523 $ (29,174) $ 397 $ (15,409) $ 354,109


		Series A preferred stock		Series B preferred stock		Common stock		Paid-in capital		Retained earnings		Treasury stock		Non controlling interest		Accum other comp loss		Total equity			Series A preferred stock		Series B preferred stock		Common stock		Paid-in capital		Retained earnings		Treasury stock		Non controlling interest		Accum other comp loss		Total equity
Balance at December 31, 2020 (Restated)		$	1	$	15	$	189	$	192,068	$	186,078	$	—	$	798	$	(18,013)	$	361,136
Balance at December 31, 2021																				Balance at December 31, 2021	$	1	$	15	$	195	$	206,772	$	202,484	$	(33,511)	$	53	$	(29,282)	$	346,727
Preferred dividends paid	Preferred dividends paid	—		—		—		—		(45)		—		—		—		(45)		Preferred dividends paid	—		—		—		—		(23)		—		—		—		(23)
Compensation expense for restricted stock		—		—		—		840		—		—		—		—		840
Restricted stock compensation expense																				Restricted stock compensation expense	—		—		—		370		—		—		—		—		370
Tax related items for share based awards	Tax related items for share based awards	—		—		—		(586)		—		—		—		—		(586)		Tax related items for share based awards	—		—		—		(159)		—		—		—		—		(159)
Issuance of shares of common stock	Issuance of shares of common stock	—		—		5		11,240		—		—		—		—		11,245		Issuance of shares of common stock	—		—		—		527		—		—		—		—		527
Currency translation adjustment	Currency translation adjustment	—		—		—		—		—		—		—		2,604		2,604		Currency translation adjustment	—		—		—		—		—		—		—		1,669		1,669
Purchase of treasury stock	Purchase of treasury stock	—		—		—		—		—		(29,174)		—		—		(29,174)		Purchase of treasury stock	—		—		—		—		—		(1,513)		—		—		(1,513)
Net income	Net income	—		—		—		—		8,490		—		(401)		—		8,089		Net income	—		—		—		—		12,642		—		(113)		—		12,529
Balance at June 30, 2021		$	1	$	15	$	194	$	203,562	$	194,523	$	(29,174)	$	397	$	(15,409)	$	354,109
Balance at March 31, 2022																				Balance at March 31, 2022	$	1	$	15	$	195	$	207,510	$	215,103	$	(35,024)	$	(60)	$	(27,613)	$	360,127

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

DXP ENTERPRISES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - THE COMPANY

DXP Enterprises, Inc. together with its subsidiaries (collectively "DXP," "Company," "us," "we," or "our") was incorporated in Texas on July 26, 1996. DXP Enterprises, Inc. and its subsidiaries are engaged in the business of distributing maintenance, repair and operating ("MRO") products and service to a variety of end markets and industrial customers. Additionally, DXP provides integrated, custom pump skid packages, pump remanufacturing and manufactures branded private label pumps to energy and industrial customers. The Company is organized into 3 business segments: Service Centers ("SC"), Supply Chain Services ("SCS") and Innovative Pumping Solutions ("IPS"). See Note 1112 - Segment Reporting for discussion of the business segments.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING AND BUSINESS POLICIES

Basis of Presentation

The Company's financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and its variable interest entity ("VIE"). The accompanying unaudited condensed consolidated financial statements have been prepared on substantially the same basis as our annual consolidated financial statements and should be read in conjunction with our Annual Report on Form ~~10-K/A~~10-K for the year ended December 31, ~~2020.~~2021. For a more complete discussion of our significant accounting policies and business practices, refer to the consolidated Annual Report on Form ~~10-K/A~~10-K filed with the Securities and Exchange Commission on ~~October 22, 2021.~~April 5, 2022. The results of operations for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 are not necessarily indicative of results expected for the full fiscal year. In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the Company's condensed consolidated statements of operations and comprehensive income for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and March 31, 2021, ~~and June 30, 2020,~~ condensed consolidated balance sheets as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, condensed consolidated statements of cash flows for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and March 31, 2021, ~~and June 30, 2020,~~ and condensed consolidated ~~statement~~statements of equity for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and ~~June 30, 2020.~~March 31, 2021. All such adjustments represent normal recurring items.

All inter-company accounts and transactions have been eliminated upon consolidation.

NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update provides optional expedients and exceptions for applying generally accepted accounting principles to certain contract modifications and hedging relationships that reference London Inter-Bank Offered Rate (LIBOR) or another reference rate expected to be discontinued. The guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company ~~is currently evaluating~~evaluated the ~~potential~~ impact of this ASU and it does not expect a material impact on the ~~financial statements.~~Consolidated Financial Statements.

In October 2021, the FASB issued Accounting Standards Update (ASU) 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to address diversity in practice on how an acquirer should recognize and measure revenue contracts acquired in a business combination. ASU 2021-08 will require an acquirer to recognize and measure contract assets acquired and contract liabilities assumed in a business combination in accordance with FASB Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers.

For the Company, ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The ASU should be applied prospectively to business combinations occurring on or after the effective date. Early adoption of ASU 2021-08 is permitted, including in an interim period. The Company expects the new Standard to have an impact for future acquisitions. From time to time the Company does acquire businesses that perform project-based work and therefore include Contract Assets and Liabilities.

All other new accounting pronouncements that have been issued, but not yet effective, are currently being evaluated and at this time are not expected to have a material impact on our financial position or results of operations.

NOTE 4 - ~~RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS~~REVISION

As previously reported, the Company restated its consolidated balance sheets as of December 31, 2020 and 2019, and consolidated statements of operations and comprehensive income, equity and cash flows for the years ended December 31, 2020, 2019 and 2018. The restatement also affected periods prior to 2018. The impact of the restatement on such prior periods was reflected as an adjustment to retained earnings as of January 1, 2018. In addition, the restatement impacts the first, second and third quarters of 2020 andDuring the first quarter of ~~2021.~~2022, we identified errors in the translation of the goodwill associated with our investment in our Canadian subsidiaries. We determined that we were not appropriately translating Canadian goodwill in consolidation since acquiring these businesses in 2012 and 2013. The ~~restated amounts for the comparable interim period in 2020 are presented below. The restatement corrects errors resulting from the~~ failure to ~~timely clear aged payables resulting from~~translate these balances resulted in an overstatement of US dollar-based goodwill for several years.

We assessed the ~~Company's three-way match process discrepancies,~~materiality of the ~~recognition~~errors on prior period financial statements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 99, Materiality, codified in Accounting Standards Codification (ASC) 250, Presentation of ~~additional consideration related to a business combination, as well as certain additional errors~~Financial Statements. We concluded that the ~~Company has determined~~errors were not material to ~~be immaterial, both individually and in aggregate. Set forth below are the restatement adjustments included in the restatement of the previously issued~~our prior period consolidated financial statements ~~for~~and therefore, amendments of previously filed consolidated financial statements are not required. In accordance with ASC 250, we have corrected the ~~year ended December 31, 2020, and~~errors by revising the ~~quarter ended June 30, 2020, each of which is an “error” within the meaning of ASC Topic 250: Accounting Changes and Error Corrections.~~consolidated financial statements presented herein. Prior periods not presented herein will be revised, as applicable, in future filings.

The ~~following tables presents the impact~~impacts of the ~~restatement adjustments described below~~revisions on ~~net income and comprehensive income for~~ the ~~quarter and~~periods presented herein are provided in the ~~six months ended June 30, 2020:~~following tables.


	Three Months Ended March 31, 2021
	As previously
	Reported		Adjustments		Revised
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Currency translation adjustments	$	1,277	$	214	$	1,491
Total comprehensive income	$	1,436	$	214	$	1,650



	As previously
	Reported		Adjustments		Revised
BALANCE SHEET (AT DECEMBER 31, 2021):
Goodwill	$	308,506	$	(11,965)	$	296,541
Total Assets	$	906,192	$	(11,965)	$	894,227

Cumulative Translation Adjustment	$	(17,317)	$	(11,965)	$	(29,282)
Equity	$	358,692	$	(11,965)	$	346,727
Total Liabilities & Equity	$	906,192	$	(11,965)	$	894,227

For the Three Months Ended June 30, 2020 For the Six Months Ended June 30, 2020
As Previously As Previously
Reported Adjustments As Restated Reported Adjustments As Restated
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Sales $ 251,401 0 $ 251,401 $ 552,384 0 $ 552,384
Cost of sales 181,705 (385) 181,320 398,703 486 399,189
Gross profit 69,696 385 70,081 153,681 (486) 153,195
Selling, general and administrative costs 62,943 — 62,943 136,013 (1,275) 134,738
Income before income taxes 2,690 385 3,075 10,062 789 10,851
Provision for income taxes 610 100 710 2,334 162 2,496
Net income $ 2,080 $ 285 $ 2,365 $ 7,728 $ 627 $ 8,355
Basic earnings per share $ 0.12 0 $ 0.14 $ 0.44 0 $ 0.48
Diluted earnings per share $ 0.12 0 $ 0.13 $ 0.42 0 $ 0.45


	Accumulated Other Comprehensive Loss
	As previously
	Reported		Adjustments		Revised
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Balance at December 31, 2020	$	(18,013)	$	(12,016)	$	(30,029)
Currency translation adjustment	$	1,277	$	214	$	1,491
Balance at March 31, 2021	$	(16,736)	$	(11,802)	$	(28,538)

Balance at December 31, 2021	$	(17,317)	$	(11,965)	$	(29,282)

For the Three Months Ended June 30, 2020 For the Six Months Ended June 30, 2020
As previously As previously
Reported Adjustments As Restated Reported Adjustments As Restated
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Net income $ 2,080 $ 285 $ 2,365 $ 7,728 $ 627 $ 8,355
Total comprehensive income $ 3,475 $ 285 $ 3,760 $ 7,960 $ 627 $ 8,587

NOTE 5 - FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

~~Adjustments~~Authoritative guidance for financial assets and liabilities measured on a recurring basis applies to ~~Net Sales~~all financial assets and ~~Related Adjustments~~financial liabilities that are being measured and reported on a fair value basis. Fair value, as defined in the authoritative guidance, is the price that would be received to ~~Cost~~sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative guidance affects the fair value measurement of ~~Products Sold~~an investment with quoted market prices in an active market for identical instruments, which must be classified in one of the following categories:

Level 1 inputs come from quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 inputs are other than quoted prices that are observable for an asset or liability. These inputs include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from, or corroborated by, observable market data by correlation or other means.

Level 3 inputs are unobservable inputs for the asset or liability which require the Company's own assumptions. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

Our acquisitions may include contingent consideration as part of the purchase price. The fair value of the contingent consideration is estimated as of the acquisition date based on the present value of the contingent payments to be made using a weighted probability of possible payments. The unobservable inputs used in the determination of the fair value of the contingent consideration include managements assumptions about the likelihood of payment based on the established benchmarks and discount rates based on an internal rate of return analysis. The fair value measurement includes inputs that are Level 3 inputs as discussed above, as they are not observable in the market. Should actual results increase or decrease as compared to the assumptions used in our analysis, the fair value of the contingent consideration obligations will increase or decrease, up to the contracted limit, as applicable. Changes in the fair value of the contingent earn-out consideration are measured each reporting period and reflected in our results of operations.

~~Unvouchered Purchase Orders~~As of March 31, 2022, we recorded liabilities in other current and long-term liabilities for contingent consideration associated with the acquisition of PMI, Burlingame and Drydon of $1.4 million, $0.1 million and $2.6 million, respectively. See further discussion at ~~The Company determined it had aged unvouchered purchase orders included in trade accounts payable.~~Note 13 - Business Acquisitions~~After lengthy investigation~~. For the Company's assets and ~~research, DXP determined that these~~liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3), the following table provides a reconciliation of the beginning and ending balances ~~were not valid legal obligations to vendors~~for each category therein, and ~~will not be invoiced~~gains or ~~paid.As a result,~~losses recognized during the ~~Company wrote off the aged balances that no longer represented legal obligations, resulting in a net reduction in accounts payable.~~three months ended March 31, 2022:

~~Landed cost inventory adjustment~~ ~~The Company determined that cost mark-ups for landed costs for certain inventory items related to our private label pumps had not been properly relieved upon the sale of these items~~.


Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Contingent Liability for Accrued Consideration
	(in thousands)
Beginning balance at December 31, 2021	$	905
Acquisitions and settlements
Acquisitions (Note 1 3 )	2,689
Settlements	—
Total remeasurement adjustments:
Changes in fair value recorded in other (income) expense, net	531
*Ending Balance at March 31, 2022	$	4,125

The amount of total (gains) or losses for the quarter included in earnings or changes to net assets, attributable to changes in unrealized losses relating to liabilities still held at March 31, 2022.	$	531

* Included in other current liabilities

~~Direct shipment cut off adjustment~~ ~~Direct shipment orders placed near period end may not be properly reflected in the correct period.The Company adjusted sales and cost of goods sold for items recorded in the incorrect period, as well as accounts receivable and payable.~~

~~Other Adjustments to Earnings from Continuing Operations Before Non-Controlling Interest and Income Taxes~~

~~Cut-off for credit card payment accruals~~ ~~In January 2020, the Company recorded its monthly payment for its P-Card credit card program, however, the charges were incurred in December 2019.This adjustment reflects the accrual in the correct period, resulting in a shift in other current liabilities between periods.~~

~~Sales tax payable accruals~~ ~~The Company increased other current liabilities for its accrual for state sales tax obligations stemming from open audits.~~

~~Adjustments to Provision for Income Taxes~~Quantitative Information about Level 3 Fair Value Measurements

The ~~adjustments reflected for~~significant unobservable inputs used in the ~~provision for income taxes are the tax consequences~~fair value measurement of the ~~above listed corrections.~~Company's contingent consideration liabilities designated as Level 3 are as follows:


(in thousands, unaudited)	Fair value at March 31, 2022		Valuation Technique	Significant Unobservable Inputs
Contingent consideration: (PMI, Burlingame and Drydon acquisitions)	$	4,125	Discounted cash flow	Annualized EBITDA and probability of achievement

~~Balance sheet adjustments~~Sensitivity to Changes in Significant Unobservable Inputs

As presented in the table above, the significant unobservable inputs used in the fair value measurement of contingent consideration related to ~~purchase accounting~~the acquisition of PMI, Burlingame and ~~consolidation~~Drydon are annualized EBITDA forecasts developed by the Company's management and the probability of achievement of those EBITDA results. The discount rate used in the calculation was 7.6%. Significant increases (decreases) in these unobservable inputs in isolation would result in a significantly (lower) higher fair value measurement.

OnOther financial instruments not measured at fair value on the Company's unaudited condensed consolidated balance sheets at March 31, 2022 and December 31, ~~2020, DXP closed~~2021, but which require disclosure of their fair values include: cash, trade accounts receivable, trade accounts payable and accrued expenses, accrued payroll and related benefits, and the revolving line of credit and term loan debt under our syndicated credit agreement facility (Note 9). Due to the short-term nature of these aforementioned securities, the Company believes that the estimated fair value of such instruments at March 31, 2022 and December 31, 2021 approximates their carrying value as reported on the ~~acquisition of 4 businesses.~~The owners of 2 of the targets were eligible for true-up consideration based upon the closing financial results of calendar year 2020. This true-up consideration was paid in July 2021; however, the amount of true-up consideration was deemed to have been accrued as of the closing of the acquisitions. Therefore this adjustment resulted in an accrual for the true-up consideration and an increase in goodwill of $13.4 million.

~~As described above, the unvouchered purchase order discrepancies resulted in a reduction of accounts payable in the amount of $12.2 million as of December 31, 2020.~~

During the consolidation of the 4 acquisitions closed on December 31, 2020, the Company improperly reflected the cash on hand at the targets as an increase in cumulative translation adjustment and other comprehensive income for approximately $2 million. This reclassification adjustment properly records the increase in cash and restricted cash upon closing.~~In addition, cumulative translation adjustment was also reduced by $1.8 million as a result of a reclassification associated with trade accounts receivable.~~

~~The following table presents the impact of the restatement adjustments on the Company’s previously reported~~unaudited condensed consolidated balance ~~sheet as of December 31, 2020 on a condensed basis:~~

sheets.

As As
BALANCE SHEET (AT DECEMBER 31, 2020): Reported Adjustments Restated
Cash and restricted cash $ 117,444 $ 1,975 $ 119,419
Accounts Receivable 163,429 3,512 166,941
Inventory 97,071 — 97,071
Federal income taxes receivable 5,632 (2,645) 2,987
Goodwill 248,339 13,428 261,767
Total Assets $ 851,861 $ 16,270 $ 868,131
Accounts Payable 75,744 (10,895) 64,849
Other current liabilities 20,834 13,895 34,729
Total Liabilities $ 503,995 $ 3,000 $ 506,995
Cumulative Translation Adjustment (21,842) 3,829 (18,013)
Retained Earnings 176,637 9,441 186,078
Equity 347,866 13,270 361,136
Total Liabilities & Equity $ 851,861 $ 16,270 $ 868,131

~~The table below presents the impact to Operating Cash Flows on a Condensed Basis as a result of the restatement for the period ended June 30, 2020:~~

For the Six Months Ended June 30, 2020
As Previously
Reported Adjustments As Restated
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Net income $ 7,728 $ 627 $ 8,355
Reconciliation of net income to net cash provided by operating activities:
Changes in operating assets and liabilities 38,711 (627) 38,084
Net cash provided by operating activities $ 61,764 0 $ 61,764

NOTE 56 – INVENTORIES

The carrying values of inventories are as follows (in thousands):


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Finished goods	Finished goods	$	105,763	$	105,527	Finished goods	$	83,655	$	80,329
Work in process	Work in process	22,076		17,021		Work in process	28,207		20,565
Obsolescence reserve		(24,392)		(25,477)
Inventories	Inventories	$	103,447	$	97,071	Inventories	$	111,862	$	100,894

NOTE 67 – ~~COSTS~~CONTRACT ASSETS AND ~~ESTIMATED PROFITS ON UNCOMPLETED CONTRACTS~~LIABILITIES

Under our customized pump production and long-term water and wastewater project contracts in our IPS segment, amounts are billed as work progresses in accordance with agreed-upon contractual terms, upon various measures of performance, including achievement of certain milestones, completion of specified units, or completion of a contract. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. Our contract assets are presented as “Cost and estimated profits in excess of billings” on our condensed consolidated balance sheets. However, we sometimes receive advances or deposits from our customers before revenue is recognized, resulting in contract liabilities that are presented as “Billings in excess of costs and estimated profits” on our unaudited condensed consolidated balance sheets.

Costs and estimated profits on uncompleted contracts and related amounts billed were as follows (in thousands):


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Costs incurred on uncompleted contracts	Costs incurred on uncompleted contracts	$	56,184	$	36,969	Costs incurred on uncompleted contracts	$	54,888	$	41,329
Estimated profits, thereon	Estimated profits, thereon	18,878		6,711		Estimated profits, thereon	21,594		17,143
Total	Total	75,062		43,680		Total	76,482		58,472
Less: billings to date	Less: billings to date	60,641		29,315		Less: billings to date	61,315		44,859
Net	Net	$	14,421	$	14,365	Net	$	15,167	$	13,613

Such amounts were included in the accompanying unaudited condensed ~~Consolidated Balance Sheets~~consolidated balance sheets for ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 under the following captions (in thousands):


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Costs and estimated profits in excess of billings	Costs and estimated profits in excess of billings	$	16,718	$	18,459	Costs and estimated profits in excess of billings	$	20,504	$	17,193
Billings in excess of costs and estimated profits	Billings in excess of costs and estimated profits	(2,300)		(4,061)		Billings in excess of costs and estimated profits	(5,328)		(3,581)
Translation adjustment	Translation adjustment	3		(33)		Translation adjustment	(9)		1
Net	Net	$	14,421	$	14,365	Net	$	15,167	$	13,613

During the ~~six~~three months ended ~~June 30, 2021, $3.8~~March 31, 2022, $2 million of the balances that were previously classified as contract liabilities at the beginning of the period shipped. Contract assets and liability changes were primarily due to normal activity and timing differences between our performance and customer payments.

NOTE 78 – INCOME TAXES

Our effective tax rate from continuing operations was ~~17.4~~a tax expense of 21.0 percent for the three months ended ~~June 30, 2021~~March 31, 2022 compared to a tax expense of ~~23.1~~90.9 percent for the three months ended ~~June 30, 2020.~~March 31, 2021. Compared to the U.S. statutory rate for the three months ended ~~June 30,~~March 31, 2022, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions recorded due to tax authorities’ auditing of research and development tax credits. The effective tax rate decreased by research and development tax credits and other tax credits. Compared to the U.S. statutory rate for the three months ended March 31, 2021, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions recorded due to tax authorities’ ~~aggressive~~ auditing of research and development tax credits. The effective tax ~~was~~rate decreased by research and development tax credits and other tax credits. Compared to the U.S. statutory rate for the three months ended June 30, 2020, the effective tax rate was increased by state taxes, foreign taxes, and nondeductible expenses and was partially offset by research and development tax credits and other tax credits.

Our effective tax rate from continuing operations was a tax expense of 26.7 percent for the six months ended June 30, 2021 compared to a tax expense of 23.0 percent for the six months ended June 30, 2020. Compared to the U.S. statutory rate for the six months ended June 30, 2021, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions recorded due to tax authorities’ aggressive auditing of research and development tax credits. The effective tax was decreased by research and development tax credits and other tax credits. Compared to the U.S. statutory rate for the six months ended June 30, 2020, the effective tax rate was increased by state taxes, foreign taxes, and nondeductible expenses and was partially offset by research and development tax credits and other tax credits.

To the extent penalties and interest would be assessed on any underpayment of income tax, such accrued amounts would be classified as a component of income tax provision (benefit) in the financial statements consistent with the Company’s policy.

NOTE 89 – LONG-TERM DEBT

The components of the Company's long-term debt consisted of the following (in thousands):


		June 30, 2021				December 31, 2020					March 31, 2022				December 31, 2021
		Carrying Value (1)		Fair Value		Carrying Value (1)		Fair Value			Carrying Value (1)		Fair Value		Carrying Value (1)		Fair Value
ABL Revolver	ABL Revolver	$	—	$	—	$	—	$	—	ABL Revolver	$	—	$	—	$	—	$	—
Term Loan B	Term Loan B	328,350		328,350		330,000		325,875		Term Loan B	325,875		325,060		326,700		325,883
Total long-term debt	Total long-term debt	328,350		328,350		330,000		325,875		Total long-term debt	325,875		325,060		326,700		325,883
Less: current portion	Less: current portion	(3,300)		(3,300)		(3,300)		(3,259)		Less: current portion	(3,300)		(3,292)		(3,300)		(3,292)
Long-term debt less current maturities	Long-term debt less current maturities	$	325,050	$	325,050	$	326,700	$	322,616	Long-term debt less current maturities	$	322,575	$	321,768	$	323,400	$	322,591

(1) Carrying value amounts do not include unamortized debt issuance costs of ~~$8.7~~$7.5 million and ~~$9.6~~$8.0 million for ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

Credit Agreements

On March 17, 2020, the Company entered into an Increase Agreement (the "Increase Agreement") that provided for a $135.0 million asset-backed revolving line of credit (the "ABL Revolver"), a $50.0 million increase above the $85.0 million original revolver. The Increase Agreement amends and supplements that certain Loan and Security Agreement, dated as of August 29, 2017. As of ~~June 30, 2021,~~March 31, 2022, the Company had no amount outstanding under the ABL Revolver and had ~~$131.3~~$132.2 million of borrowing capacity, net of the impact of outstanding letters of credit.

On December 23, 2020, DXP entered into a new seven year, $330 million Senior Secured Term Loan B (the “Term Loan B Agreement”), which replaced DXP’s previously existing Senior Secured Term Loan.

The fair value measurements used by the Company are considered Level 2 inputs, as defined in the fair value hierarchy. The fair value estimates were based on quoted prices for identical or similar securities.

The Company was in compliance with all financial covenants under the ABL Revolver and Term Loan B Agreements as of ~~June 30,~~March 31, 2022, and December 31, 2021.

NOTE 910 - EARNINGS PER SHARE DATA

Basic earnings per share is computed based on weighted average shares outstanding and excludes dilutive securities. Diluted earnings per share is computed including the impacts of all potentially dilutive securities.

The following table sets forth the computation of basic and diluted earnings per share for the periods indicated (in thousands, except per share data):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Basic:	Basic:			(Restated)				(Restated)		Basic:
Weighted average shares outstanding	Weighted average shares outstanding	19,291		17,735		19,239		17,719		Weighted average shares outstanding	18,534		19,186
Net income attributable to DXP Enterprises, Inc.	Net income attributable to DXP Enterprises, Inc.	$	8,119	$	2,427	$	8,490	$	8,479	Net income attributable to DXP Enterprises, Inc.	$	12,642	$	371
Convertible preferred stock dividend	Convertible preferred stock dividend	22		22		45		45		Convertible preferred stock dividend	23		23
Net income attributable to common shareholders	Net income attributable to common shareholders	$	8,097	$	2,405	$	8,445	$	8,434	Net income attributable to common shareholders	$	12,619	$	348
Per share amount	Per share amount	$	0.42	$	0.14	$	0.44	$	0.48	Per share amount	$	0.68	$	0.02

Diluted:	Diluted:									Diluted:
Weighted average shares outstanding	Weighted average shares outstanding	19,291		17,735		19,239		17,719		Weighted average shares outstanding	18,534		19,186
Assumed conversion of convertible preferred stock	Assumed conversion of convertible preferred stock	840		840		840		840		Assumed conversion of convertible preferred stock	840		840
Total dilutive shares	Total dilutive shares	20,131		18,575		20,079		18,559		Total dilutive shares	19,374		20,026
Net income attributable to common shareholders	Net income attributable to common shareholders	$	8,097	$	2,405	$	8,445	$	8,434	Net income attributable to common shareholders	$	12,619	$	348
Convertible preferred stock dividend	Convertible preferred stock dividend	22		22		45		45		Convertible preferred stock dividend	23		23
Net income attributable to DXP Enterprises, Inc.	Net income attributable to DXP Enterprises, Inc.	$	8,119	$	2,427	$	8,490	$	8,479	Net income attributable to DXP Enterprises, Inc.	$	12,642	$	371
Per share amount	Per share amount	$	0.41	$	0.13	$	0.42	$	0.45	Per share amount	$	0.65	$	0.02

NOTE 1011 - COMMITMENTS AND CONTINGENCIES

From time to time, the Company is a party to various legal proceedings arising in the ordinary course of business. While DXP is unable to predict the outcome or estimate the financial impact of these ~~lawsuits,~~disputes, it believes that the ultimate resolution will not have, either individually or in the aggregate, a material adverse effect on DXP's consolidated financial position, cash flows, or results of operations.

NOTE 1112 - SEGMENT REPORTING

The Company's reportable business segments are: Service Centers, Innovative Pumping Solutions and Supply Chain Services. The Service Centers segment is engaged in providing maintenance, repair and operating MRO products, equipment and integrated services, including logistics capabilities, to industrial customers. The Service Centers segment provides a wide range of MRO products in the rotating equipment, bearing, power transmission, hose, fluid power, metal working, industrial supply, safety products and safety services categories. The Innovative Pumping Solutions segment fabricates and assembles custom-made pump packages, re-manufactures pumps, manufactures branded private label pumps and provides products and process lines for the water and wastewater treatment industries. The Supply Chain Services segment provides a wide range of MRO products and manages all or part of a customer's supply chain, including warehouse and inventory management.

The high degree of integration of the Company's operations necessitates the use of a substantial number of allocations and apportionments in the determination of business segment information. Sales are shown net of inter-segment eliminations.

The following table sets out financial information related to the Company's segments excluding amortization (in thousands):

Three Months Ended June 30,
2021 2020
(Restated)
SC IPS SCS Total SC IPS SCS Total
Product sales1
$ 185,489 $ — $ 35,068 $ 220,557 $ 144,286 $ — $ 32,988 $ 177,274
Inventory services2
— — 4,263 4,263 — — 4,086 4,086
Staffing services3
24,144 — — 24,144 9,562 — — 9,562
Pump production and delivery4
— 36,727 — 36,727 — 60,479 — 60,479
Total Revenue $ 209,633 $ 36,727 $ 39,331 $ 285,691 $ 153,848 $ 60,479 $ 37,074 $ 251,401
Income from operations $ 26,300 $ 4,803 $ 3,488 $ 34,591 $ 14,050 $ 8,565 $ 3,353 $ 25,968


		Six Months Ended June 30,																	Three Months Ended March 31,
		2021								2020									2022								2021
										(Restated)
		SC		IPS		SCS		Total		SC		IPS		SCS		Total			SC		IPS		SCS		Total		SC		IPS		SCS		Total
Product sales1	Product sales1	$	350,831	$	—	$	66,845	$	417,676	$	314,081	$	—	$	77,140	$	391,221	Product sales1	$	195,626	$	—	$	42,390	$	238,016	$	165,342	$	—	$	31,777	$	197,119
Inventory services2	Inventory services2	—		—		8,459		8,459		—		—		8,311		8,311		Inventory services2	—		—		5,166		5,166		—		—		4,196		4,196
Staffing services3	Staffing services3	45,171		—		—		45,171		22,352		—		—		22,352		Staffing services3	23,171		—		—		23,171		21,027		—		—		21,027
Pump production and delivery4	Pump production and delivery4	—		59,972		—		59,972		—		130,500		—		130,500		Pump production and delivery4	—		53,058		—		53,058		—		23,245		—		23,245
Total Revenue	Total Revenue	$	396,002	$	59,972	$	75,304	$	531,278	$	336,433	$	130,500	$	85,451	$	552,384	Total Revenue	$	218,797	$	53,058	$	47,556	$	319,411	$	186,369	$	23,245	$	35,973	$	245,587
Income from operations		$	48,437	$	5,751	$	5,810	$	59,998	$	31,379	$	18,993	$	7,108	$	57,480
Income from operations5																		Income from operations5	$	27,351	$	7,069	$	4,020	$	38,440	$	22,137	$	947	$	2,323	$	25,407

1Product sales that are recognized at a point in time.

2 Inventory management services that are recognized over the contract life.

3Staffing services that are invoiced on a day-rate basis.

4Custom pump production and delivery is recognized over time.

5Income from operations excludes amortization of intangibles and corporate expenses.

The following table presents reconciliations of operating income for reportable segments to the consolidated income before taxes (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
				(Restated)				(Restated)
Operating income for reportable segments	Operating income for reportable segments	$	34,591	$	25,968	$	59,998	$	57,480	Operating income for reportable segments	$	38,440	$	25,407
Adjustment for:	Adjustment for:									Adjustment for:
Amortization of intangible assets	Amortization of intangible assets	4,306		3,046		8,452		6,243		Amortization of intangible assets	4,235		4,146
Corporate expenses	Corporate expenses	15,439		15,784		30,467		32,780		Corporate expenses	12,646		15,028
Income from operations	Income from operations	$	14,846	$	7,138	21,079		18,457		Income from operations	$	21,559	$	6,233
Interest expense	Interest expense	5,337		3,930		10,580		8,307		Interest expense	5,162		5,243
Other (income) expense, net	Other (income) expense, net	(105)		133		(535)		(701)		Other (income) expense, net	536		(430)
Income before income taxes	Income before income taxes	$	9,614	$	3,075	$	11,034	$	10,851	Income before income taxes	$	15,861	$	1,420

1413

NOTE 1213 - BUSINESS ACQUISITIONS

On ~~April 30, 2021,~~March 1, 2022, the Company completed the acquisition of ~~Carter & Verplanck, LLC~~Drydon Equipment, Inc. (“~~CVI”~~Drydon”), a distributor and manufacturers’ representative of ~~products~~pumps, valves, controls and ~~services exclusively~~process equipment focused on serving the water and wastewater ~~markets.~~industry in the Midwest. The acquisition of ~~CVI~~Drydon was funded with cash on hand as well as issuing DXP's common stock. The Company paid approximately ~~$49.7~~$7.9 million in cash and stock. ~~For the six months ended June 30, 2021, CVI contributed sales of $5.2 million and net income of $1.1 million.~~ A majority of ~~CVI's~~Drydon's sales are project-based work under the percentage-of-completion accounting model. As a result, ~~CVI~~Drydon has been included in the IPS segment. For the three months ended March 31, 2022, Drydon contributed sales of $1.4 million and net income of $0.7 million. Goodwill for the transaction totaled approximately $4.1 million.

On March 1, 2022, the Company completed the acquisition of certain assets of Burlingame Engineers, Inc. (“Burlingame”), a provider of water and wastewater equipment in the industrial and municipal sectors. The Company paid approximately $1.1 million in cash, stock and future consideration. For the three months ended March 31, 2022, Burlingame contributed sales of $0.4 million and net income of $6 thousand.

Pro forma revenue and net income have been excluded as the amounts would have been immaterial to the consolidated results of the Company for the current and prior year.

In aggregate, the acquisition-date fair value of the consideration transferred for the 2 businesses totaled $9.0 million, which consisted of the following:


Purchase Price Consideration (in millions)	Total Consideration

Cash payments	$	~~40.8~~5.8
Fair value of stock issued	~~8.9~~0.5
Future consideration	2.7
Total purchase price consideration	$	~~49.7~~9.0

The fair value of the ~~approximately 352,000~~21,844 common shares issued was determined based on the closing market price of the Company’s common shares on the acquisition date, adjusted for holding restrictions following consummation.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date:


(In thousands)
~~Accounts receivable~~Cash	$	~~4,397~~517
~~Costs in excess of billings~~Accounts receivable	~~2,484~~2,709
Other receivables	56
Inventory	37
Non-compete agreements	~~730~~229
Customer relationships	~~10,676~~
~~Goodwill~~	~~38,612~~1,770
Property and equipment	85124
Other assets	~~2,456~~2
Assets acquired	$	~~59,440~~5,444
Current liabilities assumed	~~(9,781)~~(1,061)
Net assets acquired	$	~~49,659~~4,383
Total Consideration	(9,049)
Goodwill	$	4,666

The following represents the pro forma unaudited revenue and earnings as if CVI had been included in the consolidated results of the Company for the six months ended June 20, 2020 and 2021, respectively:

Six months Ended June 30,
2020 2021
(in thousands/unaudited)
Revenue $ 558,630 $ 536,576
Net income $ 7,938 $ 8,010

Of the ~~$50~~$2 million of acquired intangible assets, ~~$0.7~~$0.2 million was provisionally assigned to non-compete agreements that are subject to amortization over 5 years, coincident with the terms of the agreements. In addition, ~~$10.7~~$1.8 million was assigned to customer relationships, and will be amortized over a period of 8 years. The ~~$38.6~~goodwill total of approximately $4.7 million ~~of goodwill was assigned to the Innovative Pumping Solutions segment. The goodwill recognized~~ is

attributable primarily to expected synergies and the assembled workforce of ~~CVI. None of the goodwill~~each entity and is ~~expected to be~~generally deductible for ~~income~~ tax purposes.

The fair value of accounts receivables acquired is ~~$4.4~~$2.7 million, which approximated book value.

The Company recognized less than ~~$200,000~~$300,000 of acquisition related costs that were expensed in the current period. These costs are included in the ~~consolidated income statement~~Condensed Consolidated Statements of Operations and Comprehensive Income in Selling, General and Administrative costs. The Company also recognized

an immaterial amount in costs associated with issuing the shares issued as consideration in the business combination. Those costs were deducted from the recognized proceeds of issuance within stockholders’ equity.

NOTE 1314 - SHARE REPURCHASE

Total consideration paid to repurchase the shares was recorded in shareholders’ equity as treasury shares. Such consideration was funded with existing cash balances and an agreement to pay sellers over 4 equal quarterly installments beginning on June 15, 2021. The remaining ~~3 installments~~1 installment totaling ~~$20.4~~$6.8 million ~~were~~was included in other current liabilities as of ~~June 30, 2021.~~March 31, 2022.

Three Months Ended June 30, Six Months Ended June 30,
(in millions, except per share data) 2021 2021
Total number of shares purchased 1.0 1.0
Amount paid $ 29.2 $ 29.2
Average price paid per share $ 28.77 $ 28.77


	Three Months Ended March 31,
(in thousands, except per share data)		2022
Total number of shares purchased		58.9
Amount paid		$	1,511
Average price paid per share		$	25.66

NOTE 1415 - SUBSEQUENT ~~EVENTS~~EVENT

On ~~July 1, 2021,~~May 3, 2022, the Company completed the acquisition of ~~Process Machinery, LLC~~Cisco Air Systems, Inc. (“~~Process Machinery”~~Cisco”),. Cisco is a leading distributor of ~~pumps, mechanical seals, tank, filters~~air compressors and related process equipment that focuses on serving the chemical, power, pulp & paper, mining, metals and food processing industries. The acquisition of Process Machinery was funded with cash on hand as well as issuing DXP's common stock. The Company paid approximately $10 million in cash and stock.

~~In September 2021, the Company completed the acquisition of Premier Water, a distributor and provider of~~ products and services ~~exclusively~~ focused on serving the ~~water~~food & beverage, transportation and ~~wastewater treatment~~general industrial markets in ~~North~~the Northern California and ~~South Carolina.The acquisition~~Nevada territories. Total consideration for the transaction was ~~also~~approximately $45 million, funded with a ~~combination~~mixture of cash on hand of $29 million, DXP stock valued at approximately $5 million and ~~stock. The Company paid~~a draw down of approximately ~~$6 million.~~$11 million on the ABL.

1615

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management discussion and analysis ("MD&A") of the financial condition and results of operations of DXP Enterprises, Inc. together with its subsidiaries (collectively "DXP," "Company," "us," "we," or "our") for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 should be read in conjunction with our previous Annual Report on Form ~~10-K/A~~10-K and our Quarterly Reports on Form 10-Q, and the consolidated financial statements and notes thereto included in such reports. The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP").

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this "Report") contains statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements include without limitation those about the Company’s expectations regarding the impact of the COVID-19 pandemic, the Ukrainian/Russia conflict and the impact ~~of low~~on commodity ~~prices of~~prices; particularly oil and gas; the Company’s business, the Company’s future profitability, cash flow, liquidity, and growth. Such forward-looking statements can be identified by the use of forward-looking terminology such as "believes", "expects", "may", "might", "estimates", "will", "should", "could", "would", "suspect", "potential", "current", "achieve", "plans" or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. Any such forward-looking statements are not guarantees of future performance and may involve significant risks and uncertainties, and actual results may vary materially from those discussed in the forward-looking statements or historical performance as a result of various factors. These factors include the effectiveness of management's strategies and decisions, our ability to implement our internal growth and acquisition growth strategies, general economic and business conditions specific to our primary customers, changes in government regulations, our ability to effectively integrate businesses we may acquire, new or modified statutory or regulatory requirements, availability of materials and labor, inability to obtain or delay in obtaining government or third-party approvals and permits, non-performance by third parties of their contractual obligations, unforeseen hazards such as weather conditions, acts of war or terrorist acts and the governmental or military response thereto, cyber-attacks adversely affecting our operations, other geological, operating and economic considerations and declining prices and market conditions, including reduced oil and gas prices and supply or demand for maintenance, repair and operating products, equipment and service, decreases in oil and natural gas ~~prices, decreases in oil and natural gas~~ industry capital expenditure levels, which may result from decreased oil and natural gas prices or other factors, economic risks related to the long-term impact of COVID-19, our ability to manage changes and the continued health or availability of management personnel, and our ability to obtain financing on favorable terms or amend our credit facilities, as needed. This Report identifies other factors that could cause such differences. We cannot assure that these are all of the factors that could cause actual results to vary materially from the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in "Risk Factors", in our Annual Report on Form ~~10-K/A~~10-K filed with the Securities and Exchange Commission on ~~October 22, 2021.~~April 5, 2022. We assume no obligation and do not intend to update these forward-looking statements. Unless the context otherwise requires, references in this Report to the "Company", "DXP", "we" or "our" shall mean DXP Enterprises, Inc., a Texas corporation, together with its subsidiaries.

CURRENT MARKET CONDITIONS AND OUTLOOK

General

DXP Enterprises, Inc. is a business-to-business distributor of maintenance, repair and operating and production ("~~MROP"~~MRO") products and services to a variety of customers in different end markets primarily across North America. Additionally, we fabricate, remanufacture and assemble custom pump packages along with manufacturing branded private label pumps.

Ukrainian - Russia Conflict

In February 2022, Russia invaded Ukraine. DXP has no direct exposure to Russia or Ukraine, however, the Company continues to monitor any broader impact in the global economy, including inflation and cost pressures, supply chains and energy prices. The full impact of the conflict on the Company’s business and financial results remains uncertain and will depend on the severity and duration of the war and its impact on global economic conditions.

Inflation

As the world recovered and reopened during fiscal 2021, and continuing into the current fiscal year, the global commodity and labor markets experienced significant inflationary pressures attributable to economic recovery and supply chain issues tightening caused by the COVID-19 pandemic and the Ukrainian-Russia conflict mentioned above. These inflationary trends increased the cost of many of the products we buy. As a distributor, we often remain neutral to inflation as those costs are generally passed

onto customers. The Company was able to implement these and other strategies designed to mitigate some of the adverse effects of higher costs during the first quarter of fiscal 2022 while also remaining price competitive.

COVID-19 Pandemic Impact

The pandemic continued to have a significant impact on our business for the six months ended June 30, 2021. The marketplace broadly, and the Company specifically, continued to operate with certain modifications to balance re-opening with employee and customer safety. However, most of the markets in which we operate continued to normalize and re-open. This improved the outlook of the manufacturing and industrial customers that support our traditional branch and onsite business. Although the rate of improvement remains gradual and the overall activity level remains below pre-pandemic levels, DXP is seeing a modest improvement from monthly lows experienced in July of 2020.

The COVID-19 pandemic ~~caused~~began in the first quarter of 2020 and continued throughout the first quarter of fiscal 2022, causing significant disruptions in the U.S. and global ~~markets,~~markets. While the ongoing recovery continues, it has been accompanied by a resurgence in demand as industries return to regular operations, which continues to disrupt supply chains, transportation efficiency, product and ~~the~~labor availability.The full extent ofand long-term impacts on the ~~impacts is still unknown~~Company’s business and financial results will depend on ~~a number of~~several uncertain and unpredictable developments including any continued spread of the virus and its variants, the availability and effectiveness of treatments and ~~use~~vaccines, imposition of ~~vaccines,~~protective public safety measures and the overall impact of ~~governmental~~government measures to combat the spread of the ~~virus (such as mask mandates or social distancing requirements) and~~virus. We are not able to ~~promote economic stability and recovery. The initial recovery from the~~

COVID-19 pandemic has been accompanied by a resurgence in demand as industries re-open, which is currently straining global supply chains, raw material and labor availability, and transportation efficiency. DXP’s businesses and its major facilities have remained operational during the pandemic aspredict whether our customers ~~relied on DXP’s products and services to keep their businesses up and running.~~

~~While the COVID-19 pandemic continues to impact global markets and the needs of customers, employees, suppliers and communities~~will continue to ~~change, the Company’s efforts~~operate at their current or historical levels, and ~~business plans will evolve accordingly. DXP is focused on serving customers and communities~~such decreases in ~~addressing the pandemic and providing products to assist in the ongoing recovery, supporting the needs and safety of employees and ensuring the Company continues to operate with~~their operations would have a strong financial position. As more vaccine is distributed and mask mandates evolve, the Company continues to monitor and refine its product assortment and actions to support customers’ return to regular operations.The COVID-19 pandemic has impacted and is likely to continue impacting our businesses and operations as well as the operations of our customers and suppliers. From a customer perspective, business re-openings, production and related activity throughout the quarter varied based on geography, industry and regional COVID-19 pandemic conditions. The Company's major operational facilities and infrastructure (i.e. distribution centers, branches, and on-site logistic partners) are remaining operational with limited disruptions, while adhering to strict safety and social-distancing protocols. In addition, the Company has prioritized maintaining all facilities safe for customers and employees to work and interact. Many of our employees, depending on local conditions and regulations, have returned to a work-from-office environment, and we expect that trend to continue in the near term.

~~As of the end of the second quarter of 2021, we have remained undrawn~~negative impact on our $135 million bank revolver; and it remains available for use in the event a need arises. In response to easing restrictions and the continued vaccination efforts, we continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, or local authorities or that we determinebusiness. We are ~~in the best interests of our employees, customers, suppliers, and shareholders. While we are~~also unable to ~~determine or~~ predict ~~the nature, duration, or scope of the overall impact~~how long the COVID-19 pandemic will ~~have~~last and the impact of the pandemic on future demand for our products and services.

For additional discussion of the potential impact of the COVID-19 pandemic on our business, ~~results of operations, liquidity, or capital resources, we believe that we have remained nimble and are poised to remain opportunistic during~~see Part I, Item 1A: Risk Factors in the ~~recovery.~~Company’s 2021 Form 10-K.

Matters Affecting Comparability

There were 64 business days in the three months ended March 31, 2022 and 63 business days in the three months ended ~~June 30, 2021 and June 30, 2020. There were 126 business days in the six months ended June 30, 2021 and 127 business days in the six months ended June 30, 2020.~~March 31, 2021.

Outlook

Service Centers & Supply Chain Services Segments

The replacement and mission-critical nature of our products and services within the Company's Service Centers and Supply Chain Services business segments and industrial and manufacturing environments and processes drives a demand and outlook that are correlated with global, national and regional industrial production, capacity utilization and long-term GDP growth. ~~Economic~~Long-term economic conditions remain uncertain with regard to COVID-19 and its impact on various end markets, however, recent order activity ~~has begun to improve~~improved as markets strengthened and ~~gained greater visibility to vaccine roll-out strategies in various regions.~~restrictions and mandates were lifted. In the ~~second~~first quarter of ~~2021,~~2022, we had approximately ~~$249.0~~$266.4 million in sales in our Service Centers and Supply Chain Services segment, an increase of approximately ~~30.4~~19.8 percent over the ~~the second~~first quarter of ~~2020. While the Company continues to expect choppiness as the economy gradually gains confidence with COVID-19 vaccines, we~~2021. We expect financial results to continually improve with interim periods of potential ~~setback.~~setback should new variants arise or other economic headwinds prevail.

Innovative Pumping Solutions Segment

~~To date,~~In the ~~Company's~~first quarter of 2022, we had approximately $53.1 million in sales in our Innovative Pumping Solutions segment, ~~has been able to absorb~~an increase of approximately $29.8 million over the ~~pandemic~~first quarter of 2021, of which $9.1 million was associated with ~~small workforce reductions or furloughs, which positions~~recent acquisitions in the ~~Company for accelerated growth once recovery is clear within Innovative Pumping Solutions. The oil~~water and ~~gas industry continues to be impacted by~~wastewater market. Beginning in the ~~COVID-19 pandemic, along with other industry specific factors including environmental concerns and issues.~~

~~In the first~~latter half of 2021, we began to see an improvement in the demand for oil and natural gas as the roll out of the COVID-19 vaccinations gradually improved around the globe and pandemic restrictions eased. The increasing optimism related to oil & gas demand recovery ~~has~~ led to higher commodity ~~prices and although~~prices. Although demand levels ~~remain~~remained below pre-pandemic levels, there is growing confidence of returning to 2019 levels in the coming years. ~~Also, contributing to~~In the ~~improvement in oil prices has been cooperation within OPEC to implement production cuts over~~first quarter of 2022, the last year; however, it was recently announced that OPEC intends to increase production beginning in August 2021, that will continue into late 2022 to match increasing demand expectations. Demand recovery could still possibly slow or pause as a result of additional waves of pandemic outbreak or heightened pandemic control measures. Over the longer term, we could also experience a structural shiftUkrainian-Russia conflict caused further disruption in the global ~~economy and its demand for~~ oil and ~~natural~~ gas ~~as a result of changes~~supply and spurred price increases around the world. These forces contributed to higher spend by oil and gas producers and thus an increase in oil & gas projects within our Innovative Pumping Solutions segment. We expect to benefit from the ~~way people work, travel and interact.~~increased activity throughout 2022.

1817

RESULTS OF OPERATIONS

(in thousands, except percentages and per share data)

DXP is organized into three business segments: Service Centers ("SC"), Supply Chain Services ("SCS") and Innovative Pumping Solutions ("IPS"). The Service Centers are engaged in providing maintenance, repair and operating ("MRO") products, equipment and integrated services, including technical expertise and logistics capabilities, to industrial customers with the ability to provide same day delivery. The Service Centers provide a wide range of MRO products and services in the rotating equipment, bearing, power transmission, hose, fluid power, metal working, industrial supply and safety product and service categories. The SCS segment provides a wide range of MRO products and manages all or part of our customer's supply chain function, and inventory management. The IPS segment fabricates and assembles integrated pump system packages custom made to customer specifications, remanufactures pumps and manufactures branded private label pumps.


		Three Months Ended June 30,									Three Months Ended March 31,
		2021		%		2020		%			2022		%		2021		%
						(Restated)
Sales	Sales	$	285,691	100.0	%	$	251,401	100.0	%	Sales	$	319,411	100.0	%	$	245,587	100.0	%
Cost of sales	Cost of sales	200,413		70.2	%	181,320		72.1	%	Cost of sales	224,527		70.3	%	173,957		70.8	%
Gross profit	Gross profit	$	85,278	29.8	%	$	70,081	27.9	%	Gross profit	$	94,884	29.7	%	$	71,630	29.2	%
Selling, general and administrative expenses	Selling, general and administrative expenses	70,432		24.7	%	62,943		25.0	%	Selling, general and administrative expenses	73,325		23.0	%	65,397		26.6	%
Impairment and other charges										Impairment and other charges	—		—	%	—		—	%
Income from operations	Income from operations	$	14,846	5.2	%	$	7,138	2.8	%	Income from operations	$	21,559	6.7	%	$	6,233	2.5	%
Other (income) expense, net	Other (income) expense, net	(105)		—	%	133		0.1	%	Other (income) expense, net	536		0.2	%	(430)		(0.2)	%
Interest expense	Interest expense	5,337		1.9	%	3,930		1.6	%	Interest expense	5,162		1.6	%	5,243		2.1	%
Income before income taxes	Income before income taxes	$	9,614	3.4	%	$	3,075	1.2	%	Income before income taxes	$	15,861	5.0	%	$	1,420	0.6	%
Provision for income taxes	Provision for income taxes	1,684		0.6	%	710		0.3	%	Provision for income taxes	3,332		1.0	%	1,261		0.5	%
Net income	Net income	$	7,930	2.8	%	$	2,365	0.9	%	Net income	$	12,529	3.9	%	$	159	0.1	%
Net loss attributable to noncontrolling interest	Net loss attributable to noncontrolling interest	(189)		—		(62)		—		Net loss attributable to noncontrolling interest	(113)		—		(212)		—
Net income attributable to DXP Enterprises, Inc.	Net income attributable to DXP Enterprises, Inc.	$	8,119	2.8	%	$	2,427	1.0	%	Net income attributable to DXP Enterprises, Inc.	$	12,642	4.0	%	$	371	0.2	%
Per share amounts attributable to DXP Enterprises, Inc.	Per share amounts attributable to DXP Enterprises, Inc.									Per share amounts attributable to DXP Enterprises, Inc.
Basic earnings per share	Basic earnings per share	0.42				$	0.14			Basic earnings per share	0.68				$	0.02
Diluted earnings per share	Diluted earnings per share	0.41				$	0.13			Diluted earnings per share	0.65				$	0.02

Three Months Ended ~~June 30, 2021~~March 31, 2022 compared to Three Months Ended ~~June 30, 2020~~March 31, 2021

SALES. Sales for the three months ended ~~June 30, 2021~~March 31, 2022 increased ~~$34.3~~$73.8 million, or ~~13.6~~30.1 percent, to approximately ~~$285.7~~$319.4 million from ~~$251.4~~$245.6 million for the prior year's corresponding period. Sales from businesses acquired ~~in December 2020 and April 2021~~for three months ended March 31, 2022, accounted for ~~$37.7~~$13.1 million of the sales for the three months ended ~~June 30, 2021.~~March 31, 2022. This overall sales increase is the result of an increase in sales in our SC, IPS and SCS segments of ~~$55.8~~$32.4 million, $29.8 million and ~~$2.3~~$11.6 million, ~~partially offset by a decrease in sales of $23.8 million in our IPS segment.~~respectively. The fluctuations in sales are further explained in our business segment discussions below.

Three Months Ended June 30,
2021 2020 Change Change%
Sales by Business Segment (in thousands, except change %)
Service Centers $ 209,633 $ 153,848 $ 55,785 36.3 %
Innovative Pumping Solutions 36,727 60,479 (23,752) (39.3) %
Supply Chain Services 39,331 37,074 2,257 6.1 %
Total DXP Sales $ 285,691 $ 251,401 $ 34,290 13.6 %


	Three Months Ended March 31,
	2022		2021		Change		Change%
Sales by Business Segment	(in thousands, except change %)
Service Centers	$	218,797	$	186,369	$	32,428	17.4	%
Innovative Pumping Solutions	53,058		23,245		29,813		128.3	%
Supply Chain Services	47,556		35,973		11,583		32.2	%
Total DXP Sales	$	319,411	$	245,587	$	73,824	30.1	%

1918

Service Centers segment. Sales for the SC segment increased by approximately ~~$55.8~~$32.4 million, or ~~36.3~~17.4 percent for the three months ended ~~June 30, 2021~~March 31, 2022 compared to the prior year's corresponding period. Excluding ~~$32.5~~$4.0 million of ~~second quarter 2021 SC segment sales from businesses acquired in December 2020,~~ Service Centers segment sales ~~for the second quarter~~associated with recent acquisitions, sales increased ~~$23.3~~$28.4 million ~~or 15.1 percent~~ from the prior year's corresponding period. This sales increase is primarily the result of increased sales of rotating equipment, safety supplies, metal working, and bearings and power transmission products to customers engaged in variety of markets ~~compared due to the negative economic impacts~~as a result of the ~~COVID-19~~lifting of pandemic ~~on 2020 sales results.~~restrictions and a return to normal production and activity.

Innovative Pumping Solutions segment. Sales for the IPS segment ~~decreased~~increased by ~~$23.8~~$29.8 million, or ~~39.3~~128.3 percent, for the three months ended ~~June 30, 2021~~March 31, 2022 compared to the prior year's corresponding period. Excluding ~~$5.2~~$9.1 million of ~~second quarter 2021~~ IPS segment sales from ~~a business acquired in April 2021,~~recent acquisitions, IPS segment sales ~~for the second quarter decreased $28.9~~increased $20.7 million ~~or 47.8 percent~~ from the prior year's corresponding period. This ~~decrease~~increase was primarily the result of ~~a decrease~~an increase in the capital spending by oil and gas producers and related ~~businesses stemming from a decrease in U.S. crude oil production previously announced due to the negative economic impacts of the COVID-19 pandemic.~~businesses.

Supply Chain Services segment. Sales for the SCS segment increased by ~~$2.3~~$11.6 million, or ~~6.1%,~~32.2 percent, for the three months ended ~~June 30, 2021,~~March 31, 2022, compared to the prior year's corresponding period. The improved sales is primarily related to increased sales to customers in the food & beverage, general manufacturing and aerospace industries ~~compared to~~as pandemic restrictions subsided and the ~~negative economic impacts of the COVID-19 pandemic on 2020 sales results.~~economy rebounded.

GROSS PROFIT. Gross profit as a percentage of sales for the three months ended ~~June 30, 2021 increased by approximately 197 basis points from~~March 31, 2022 was 29.7 percent versus 29.2 percent in the prior year's corresponding period. Excluding the impact of the businesses acquired, gross profit as a percentage of sales ~~increased by approximately 175 basis points.~~was 29.5 percent. The increase in the gross profit percentage excluding the businesses acquired is primarily the result of an ~~approximate a 253 basis point~~ increase in ~~the gross profit percentage in~~overall project activity within our ~~SC segment, 19 basis point increase in the gross profit percentage in our~~ IPS ~~segment, and a 11 basis point decrease in the gross profit percentage in our SCS~~ segment.

Service Centers segment. As a percentage of sales, the ~~second~~first quarter gross profit percentage for the SC segment increased approximately ~~247~~127 basis points. Adjusting for the businesses acquired, gross profit as a percentage of sales increased approximately ~~253~~133 basis points from the prior year's corresponding period. This was primarily aswas a result of volume increases and product mix. Gross profit for the ~~Service Centers~~SC segment, excluding businesses acquired, increased ~~$11.1~~$11.3 million, or ~~25.4~~20.4 percent, during the ~~second quarter of 2021~~three months ended March 31, 2022 compared to the prior year’s corresponding period. ~~The increase in gross profit is primarily the result of the improvement in sales due to the items discussed above.~~

Innovative Pumping Solutions segment. As a percentage of sales, the ~~second~~first quarter gross profit percentage for the IPS segment ~~increased~~decreased approximately ~~129~~493 basis points. Adjusting for the business acquired, gross profit as a percentage of sales ~~increased~~decreased approximately 19645 basis points from the prior year's corresponding period. The ~~increase~~decrease in gross profit percentage is primarily due to a mix shift (higher margin international work and domestic water and wastewater projects). Gross profit dollars ~~decreased $8.2~~increased $4.4 million compared to the prior year corresponding period, excluding business acquired, primarily as a result of ~~a decrease~~an increase in ~~utilization~~project work as a result of ~~significantly reduced~~an increase in capital ~~expenditure budgets~~spending by our ~~customers associated with the negative economic impacts of the COVID-19 pandemic.~~customers.

Supply Chain Services segment. Gross profit as a percentage of sales for the SCS segment ~~decreased~~increased approximately 1180 basis points compared to the prior year's corresponding period. Gross profit for the ~~second~~first quarter of ~~2021~~2022 increased ~~$0.5~~$3.0 million or ~~5.6%~~36.8% compared to the prior year's corresponding ~~period, primarily the result of the improvement in sales due to the items discussed above.~~period.

SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). Selling, general and administrative expense for the three months ended ~~June 30, 2021~~March 31, 2022 increased by approximately ~~$7.5~~$7.9 million, or ~~11.9%~~12.1%, to ~~$70.4~~$73.3 million from ~~$62.9~~$65.4 million for the prior year's corresponding period. Selling, general and administrative expense from businesses acquired accounted for ~~$6.0~~$2.2 million. Excluding expenses from businesses acquired, SG&A for the quarter increased by ~~$1.5~~$5.7 million, or ~~2.3%~~8.7%. The increase in SG&A excluding businesses acquired is primarily the result of increased payroll, incentive compensation and related taxes and 401(k) expenses as a result of increased business activity associated with recovery from the negative economic impacts of the COVID-19 pandemic.

OPERATING INCOME. Operating income for the ~~second~~first quarter of ~~2021~~2022 increased by ~~$7.7~~$15.3 million to ~~$14.8~~$21.6 million, from ~~$7.1~~$6.2 million in the prior year's corresponding period. This increase in operating income is primarily related to the ~~above mentioned increase in sales and profitability with SC and IPS.~~aforementioned increased business activity across all segments.

INTEREST EXPENSE. Interest expense for the ~~second~~first quarter of ~~2021~~2022 increased ~~$1.4~~$0.1 million compared with the prior year's corresponding period primarily due to a higher principal balance for the three months ended June 30, 2021 compared to the prior year's corresponding period as a result of the Company entering into a new term loan in December 2020. This was partially offset by lower LIBOR rates for the three months ended June 30, 2021..

INCOME TAXES. Our effective tax rate from continuing operations was a tax expense of ~~17.4~~21.0 percent for the three months ended ~~June 30, 2021~~March 31, 2022 compared to a tax expense of ~~23.1~~90.9 percent for the three months ended ~~June 30, 2020.~~March 31, 2021. Compared to the U.S. statutory rate for the three months ended ~~June 30, 2020,~~March 31, 2022, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions ~~which required an increase in reserves.~~recorded due to tax authorities’ auditing of research and development tax credits. The effective tax rate was ~~partially offset~~decreased by research and development tax credits and other tax credits.

Six Months Ended June 30,
2021 % 2020 %
(Restated)
Sales $ 531,278 100.0 % $ 552,384 100.0 %
Cost of sales 374,370 70.5 % 399,189 72.3 %
Gross profit $ 156,908 29.5 % $ 153,195 27.7 %
Selling, general and administrative expenses 135,829 25.6 % 134,738 24.4 %
Income from operations $ 21,079 4.0 % $ 18,457 3.3 %
Other (income) expense, net (535) (0.1) % (701) (0.1) %
Interest expense 10,580 2.0 % 8,307 1.5 %
Income before income taxes $ 11,034 2.1 % $ 10,851 2.0 %
Provision for income taxes 2,945 0.6 % 2,496 0.5 %
Net income $ 8,089 1.5 % $ 8,355 1.5 %
Net loss attributable to noncontrolling interest (401) — (124) — %
Net income attributable to DXP Enterprises, Inc. $ 8,490 1.6 % $ 8,479 1.5 %
Per share amounts attributable to DXP Enterprises, Inc.
Basic earnings per share $ 0.44 $ 0.48
Diluted earnings per share $ 0.42 $ 0.45

~~Six Months Ended June 30, 2021 compared to Six Months Ended June 30, 2020~~

~~SALES.~~ Sales for the six months ended June 30, 2021 decreased $21.1 million, or 3.8 percent, to approximately $531.3 million from $552.4 million for the prior year's corresponding period. Sales from businesses acquired since December 2020 accounted for $66.1 million of the sales for the six months ended June 30, 2021. This sales decrease is the result of a decrease in sales in our IPS and SCS segments of $70.5 million, and $10.1 million. This was partially offset by an increase of $59.6 million in SC. The fluctuations in sales are further explained in our business segment discussions below.

Six Months Ended June 30,
2021 2020 Change Change%
Sales by Business Segment (in thousands, except change%)
Service Centers 396,002 336,433 $ 59,569 17.7 %
Innovative Pumping Solutions 59,972 130,500 (70,528) (54.0) %
Supply Chain Services 75,304 85,451 (10,147) (11.9) %
Total DXP Sales $ 531,278 $ 552,384 $ (21,106) (3.8) %

~~Service Centers segment.~~ Sales for the SC segment increased by $59.6 million, or 17.7 percent for the six months ended June 30, 2021 compared to the prior year's corresponding period. Excluding $60.9 million of Service Center segment sales for the six months ended June 30, 2021 from businesses acquired, SC segment sales decreased $1.4 million, or 0.4 percent from the prior year's corresponding period. This sales decrease is primarily the result of decreased sales of metal working, safety services and bearings to customers engaged in the OEM oil and gas markets in connection with decreased capital spending by oil and gas producers.

~~Innovative Pumping Solutions segment~~. Sales for the IPS segment decreased by $70.5 million, or 54.0 percent for the six months ended June 30, 2021 compared to the prior year's corresponding period. Excluding $5.2 million of IPS segment sales for the six months ended June 30, 2021 from a business acquired, IPS segment sales decreased $75.7 million, or 58.0 percent from the prior year's corresponding period. This decrease was primarily the result of a decrease in the capital spending by oil and gas producers and related businesses stemming from a decrease in U.S. crude oil production due to low crude prices and the economic impacts of COVID-19. The current level of IPS sales activity could continue during the remainder of 2021.

~~Supply Chain Services segment.~~ Sales for the SCS segment decreased by $10.1 million, or 11.9 percent, for the six months ended June 30, 2021, compared to the prior year's corresponding period. The decline in sales is primarily related to decreased sales to customers in the aerospace and oil and gas industries due to the economic impacts of the COVID-19 pandemic.

~~GROSS PROFIT.~~ Gross profit as a percentage of sales for the six months ended June 30, 2021 increased by approximately 180 basis points from the prior year's corresponding period. Excluding the impact of the businesses acquired, gross profit as a percentage of sales increased by approximately 158 basis points. The increase in the gross profit percentage is primarily the result of an approximate 270 basis point increase in the gross profit percentage in our IPS segment, and a 182 basis point increase in the gross profit percentage in our SC segment, excluding businesses acquired. Additionally, a 20 basis point increase in the gross profit percentage in our SCS segment contributed to the increase.

~~Service Centers segment.~~ As a percentage of sales, the six months ended June 30, 2021 gross profit percentage for the Service Centers increased approximately 187 basis points from the prior year's corresponding period. This was primarily the result of increased sales of rotating equipment and bearings and power transmission products to customers engaged in non-oil and gas markets.

~~Innovative Pumping Solutions segment.~~ As a percentage of sales, the six months ended June 30, 2021 gross profit percentage for the IPS segment increased approximately 314 basis points from the prior year's corresponding period. The increase in gross profit percentage is primarily due to a mix shift (higher margin international work and domestic water and wastewater projects) as well as the shipment of negative gross profit percentage work completing in 2020. Gross profit dollars decreased $18.4 million, primarily as a result of significantly reduced capital expenditure budgets by our customers associated with the negative economic impacts of the COVID-19 pandemic.

~~Supply Chain Services segment.~~ Gross profit as a percentage of sales increased approximately 20 basis points, compared to the prior year's corresponding period. Gross profit for the second quarter of 2021 decreased $2.2 million or 11.1 percent compared to the prior year's corresponding period, primarily the result of the decline in sales due to the items discussed above.

~~SELLING, GENERAL AND ADMINISTRATIVE ("SG&A").~~ Selling, general and administrative expense for the six months ended June 30, 2021 decreased by approximately $1.1 million, or 0.8 percent, to $135.8 million from $134.7 million for the prior year's corresponding period. Selling, general and administrative expense from businesses acquired accounted for $10.9 million. Excluding expenses from businesses acquired, SG&A for the six months ended June 30, 2021 decreased by $9.8 million, or 7.3 percent. The decrease in SG&A excluding businesses acquired is the result of decreased payroll, incentive compensation and related taxes and 401(k) expenses as a result of decreased business activity and cost reduction actions associated with COVID-19 and depressed demand in oil and gas markets.

~~OPERATING INCOME.~~ Operating income for the six months ended June 30, 2021 increased by $2.6 million or 14.2% to $21.1 million from $18.5 million in the prior year's corresponding period. This increase in operating income is primarily related to the items discussed above.

~~INTEREST EXPENSE.~~ Interest expense for the six months ended June 30, 2021 increased $2.3 million compared with the prior year's corresponding period primarily due to a higher principal balance for the six months ended June 30, 2021 compared to the prior year's corresponding period as a result of the Company entering into a new term loan in December 2020 partially offset by lower LIBOR rates for the six months ended June 30, 2021.

~~INCOME TAXES.~~ Our effective tax rate from continuing operations was a tax expense of 26.7 percent for the six months ended June 30, 2021 compared to a tax expense of 23.0 percent for the six months ended June 30, 2020. Compared to the U.S. statutory rate for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions ~~which required an increase in reserves.~~recorded due to tax authorities’ auditing of research and development tax credits. The effective tax rate was ~~partially offset~~decreased by research and development tax credits and other tax ~~credits..~~credits.

LIQUIDITY AND CAPITAL RESOURCES

General Overview

As of ~~June 30, 2021,~~March 31, 2022, we had cash and restricted cash of ~~$79.3~~$36.7 million and credit facility availability of ~~$131.3~~$132.2 million. We have a $135.0 million asset-based loan ("ABL") facility, partially offset by letters of credit of ~~$3.7~~$2.8 million, that is due to mature in August 2022, under which we had no borrowings outstanding as of ~~June 30, 2021~~March 31, 2022 and a Term Loan B with ~~$328.4~~$325.9 million in borrowings. The Company intends to amend and extend the ABL prior to the August deadline.

Our primary source of capital is cash flow from operations, supplemented as necessary by bank borrowings or other sources of financing. As a distributor of MRO products and services and fabricator of custom pumps and packages, working capital can fluctuate as a result of changes in inventory levels, accounts receivable and costs in excess of billings for project work. Additional cash is required for capital items for information technology, warehouse equipment, leasehold improvements, pump manufacturing equipment and safety services equipment. We also require cash to pay our lease obligations and to service our debt.

The following table summarizes our net cash flows generated by ~~or used in~~ operating activities, net cash ~~provided by or~~ used in investing activities and net cash used in financing activities for the periods presented (in thousands):


		Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020			2022		2021
Net Cash Provided by (Used in):	Net Cash Provided by (Used in):					Net Cash Provided by (Used in):
Operating Activities	Operating Activities	$	16,206	$	61,764	Operating Activities	$	2,680	$	8,577
Investing Activities	Investing Activities	(44,664)		(19,163)		Investing Activities	(6,056)		617
Financing Activities	Financing Activities	(12,004)		(17,133)		Financing Activities	(9,322)		(1,365)
Effect of Foreign Currency	Effect of Foreign Currency	303		(1,025)		Effect of Foreign Currency	268		204
Net Change in Cash	Net Change in Cash	$	(40,159)	$	24,443	Net Change in Cash	$	(12,430)	$	8,033

Operating Activities

The Company generated ~~$16.2~~$2.7 million of cash infrom operating activities during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 compared to ~~$61.8~~$8.6 million of cash generated during the prior year's corresponding period. The ~~$45.6~~$5.9 million decrease in the amount of cash provided between the two periods was primarily driven by the increase in ~~accounts receivables associated with trade accounts receivables from recent acquisitions without comparable~~project work activity during the period. Cash is generally used to fund project costs in ~~2020 and increased business activity in 2021.~~excess of amounts billed.

Investing Activities

For the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, net cash used in investing activities was ~~$44.7~~$6.1 million compared to ~~$19.2~~$0.6 million ~~use of~~ cash generated during the prior year’s corresponding period. This ~~$25.5~~$6.7 million increase was primarily driven by the purchase of ~~CVI~~Drydon and Burlingame in the second quarter of 2021. For the six months ended June 30, 2021, purchases of property and equipment decreased to approximately $1.5 million compared to $5.1 million in 2020 primarily due to reduced capital spending as a result of company-wide cost cutting measures in response to the COVID-19 pandemic.March 2022. The ~~current~~prior year period also benefited from the sale of a corporate asset totaling $1.3 ~~million.~~million without comparable activity in the current year.

Financing Activities

For the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, net cash used in financing activities was ~~$12.0~~$9.3 million, compared to net cash used in financing activities of ~~$17.1~~$1.4 million during the prior year’s corresponding period. The activity in the period was primarily attributed to ~~Term Loan B required principal payments~~share repurchase installment payment of ~~$1.7~~$6.8 million related to shares repurchased in 2021 ~~compared to $16.3 million in required principal~~ and ~~optional prepayments in 2020. This was partially offset by~~ share purchases in ~~2021~~2022 of ~~$8.8 million with no comparable activity in 2020.~~$1.5 million.

On May 12, 2021, the Company announced that its Board of Directors authorized a share repurchase program (the “program”) under which up to $85.0 million or 1.5 million shares of its outstanding common stock may be acquired in the open market over the next 24 months at the discretion of management. During the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 we purchased ~~1.0 million~~59 thousand shares for ~~$29.2~~approximately $1.5 million. Such consideration was funded with existing cash balances and an agreement to pay sellers over four equal quarterly installments beginning on June 15, 2021. The remaining ~~three installments~~installment of ~~$20.4~~$6.8 million ~~were~~was included in other current liabilities as of ~~June 30, 2021.~~March 31, 2022.

We believe this is adequate funding to support working capital needs within the business.

Funding Commitments

We intend to pursue additional acquisition targets, but the timing, size or success of any acquisition and the related potential capital commitments cannot be determined with certainty. We continue to expect to fund future acquisitions primarily with cash flows from operations and borrowings, including the undrawn portion of the credit facility or new debt issuances, but may also issue additional equity either directly or in connection with acquisitions. There can be no assurance that additional financing for acquisitions will be available at terms acceptable to the Company.

The Company believes cash generated from operations will meet normal working capital needs during the next twelve months. However, the Company may require additional debt outside of our credit facilities or equity financing to fund potential acquisitions. Such additional financings may include additional bank debt or the public or private sale of debt or equity securities. In connection with any such financing, the Company may issue securities that dilute the interests of our shareholders.

DISCUSSION OF SIGNIFICANT ACCOUNTING AND BUSINESS POLICIES

Critical accounting and business policies are those that are both most important to the portrayal of a company's financial position and results of operations, and require management's subjective or complex judgments. These policies have been discussed with the Audit Committee of the Board of Directors of DXP.

The Company's unaudited condensed financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of the Company, its wholly owned subsidiaries and its variable interest entity ("VIE"). The accompanying unaudited Condensed Consolidated Financial Statements have been prepared on substantially the same basis as our annual Consolidated Financial Statements and should be read in conjunction with our annual report on Form ~~10-K/A~~10-K for the year ended December 31, ~~2020.~~2021. For a more complete discussion of our significant accounting policies and business practices, refer to the consolidated annual report on Form ~~10-K/A~~10-K filed with the Securities and Exchange Commission on ~~October 22, 2021.~~April 5, 2022. The results of operations for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 are not necessarily indicative of results expected for the full fiscal year.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 3 - Recent Accounting Pronouncements to the Condensed Consolidated Financial Statements for information regarding recent accounting pronouncements.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

For quantitative and qualitative disclosures about market risk, see Item 7A, 'Quantitative and Qualitative Disclosures About Market Risk,' of our Annual Report on Form ~~10-K/A~~10-K for the year ended December 31, ~~2020.~~2021. Our exposures to market risk have not changed materially since December 31, ~~2020.~~2021.

2421

ITEM 4: CONTROLS AND PROCEDURES.

~~Disclosure Controls~~With the participation of management, our principal executive officer and ~~Procedures~~

~~We maintain disclosure controls and procedures that are designed~~principal financial officer carried out an evaluation, pursuant to ~~ensure that information required to be disclosed by us in reports we file or submit under~~Rule 13a-15(b) of the Securities Exchange Act of 1934, ~~is reported, processed, and summarized within the time periods specified in the SEC’s rules and forms. As~~as amended (the “Exchange Act”), of ~~June 30, 2021, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated~~ the effectiveness of our disclosure controls and procedures (as defined in ~~Rules~~Rule 13a-15(e) ~~and 15d-15(e) under~~of the ~~Securities and~~ Exchange ~~Act~~Act) as of ~~1934).~~the end of the period covered by this report. Based upon that evaluation, our ~~Chief Executive Officer~~principal executive officer and Chief Financial Officer concluded that our disclosure controls and procedures were ineffective, as of June 30, 2021 due to previously identified material weakness in our internal controls as we did not have adequate internal controls that ensure timely clearing of aged accounts payables arising from three-way match exceptions for items ordered through purchase orders. In connection with the correction associated with aged accounts payable, management identified a material weakness in the design of the Company’s controls around journal entries, specifically requiring review and approval by senior management with the requisite experience, authority and competence to determine the proper conclusion. In addition, management identified a material weakness around business combination accounting, specifically as it relates to the identification of all agreements and their impact on the transaction and future consideration and disclosure. As a result of these material weaknesses, management evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2021 and hasprincipal financial officer concluded that our disclosure controls and procedures were not effective as of ~~that date~~March 31, 2022 because of ~~such~~the material ~~weaknesses.~~weaknesses in internal control over financial reporting described below.

~~Remediation Plan~~Notwithstanding these material weaknesses, our management, including our principal executive officer and ~~Status~~principal financial officer, has concluded that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q are fairly stated in all material respects in accordance with GAAP for ~~Material Weakness~~each of the periods presented.

~~In response to the identified~~Material Weaknesses in Internal Control Over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our ~~management,~~annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the ~~oversight of the Audit Committee~~preparation of our ~~Board~~financial statements for 2020 and 2021, we identified certain control deficiencies in the design and operation of ~~Directors, has dedicated significant resources, including the involvement of outside advisors, and efforts to improve~~ our internal control over financial reporting ~~and has taken immediate action to remediate the~~that constituted material weaknesses. The material weaknesses ~~identified. Certain remedial actions have been completed including ongoing involvement of outside advisors, reassessment of application controls within our accounts payable procure-to-pay platform~~are:

Material weakness related to unvouchered purchase order receipts: We did not design and ~~training programs around the issuance of purchase orders. The Company will further enhance these~~maintain effective controls over the timely clearing of discrepancies arising from our three-way-match process. Specifically, controls were not designed appropriately to ensure that aged items were properly cleared from the sub-ledger and ultimately accounts payable. This material weakness resulted in a restatement of previously reported results related to periods prior to December 31, 2020. Additionally, this material weakness could result in a misstatement of accounts and disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

Material weakness related to the application of percentage-of-completion (“POC”) accounting: We did not design or maintain effective controls over the completeness, accuracy, occurrence or determination of revenue recognized under the percentage-of-completion input method for our project-based businesses. Specifically, controls were not designed or maintained to ensure accuracy of the costs-to-date and estimates of the cost-to-complete for certain project-based contracts. In addition, clerical errors were noted in the determination of revenue recognized under the POC method. This material weakness resulted in immaterial audit adjustments related to revenue and related contract assets and liabilities during the year ended December 31, 2021. Additionally, this material weakness could result in a misstatement of accounts and disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

REMEDIATION PLAN FOR MATERIAL WEAKNESSES

To date we have implemented several process changes to limit the accumulation and aging of unmatched items. We continue to enhance policies and systems to timely clear discrepancies and prevent an accumulation of balances. Additionally, management is currently in the process of developing and implementing changes as a part of a comprehensive remediation plan to address the material weakness related to the application of POC accounting. We believe the remediation activities will extend through the remainder of ~~2021.~~fiscal year 2022.

Changes in Internal Control ~~over~~Over Financial Reporting

~~Other than those discussed~~Except as described above, there were no changes in ~~the Company’s~~ internal control over financial reporting ~~during~~identified in the ~~second~~evaluation for the quarter ~~of 2021~~ended March 31, 2022, that have materially affected, or are reasonably likely to materially affect, ~~the Company’s~~our internal control over financial reporting.

~~Inherent Limitations of Internal Controls~~

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

2522

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, the Company is a party to various legal proceedings arising in the ordinary course of business. While DXP is unable to predict the outcome of these lawsuits, it believes that the ultimate resolution will not have, either individually or in the aggregate, a material adverse effect on DXP's consolidated financial position, cash flows, or results of operations.

ITEM 1A. RISK FACTORS.

There have been no material changes to the risk factors as previously disclosed in “Part I. Item 1A. Risk Factors” in our annual report on Form ~~10-K/A~~10-K for the year end December 31, ~~2020.~~2021.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Recent Sales of Unregistered Securities

DXP Enterprises, Inc. issued 18,263 unregistered shares of DXP Enterprises, Inc.’s common stock as part of the consideration for the March 1, 2022 acquisition of Drydon. The unregistered shares were issued to the sellers of Drydon.

DXP Enterprises, Inc. issued 3,581 unregistered shares of DXP Enterprises, Inc.’s common stock as part of the consideration for the March 1, 2022 acquisition of Burlingame. The unregistered shares were issued to the sole seller of Burlingame.

We relied on Section 4(a)(2) of the Securities Exchange Act as a basis for exemption from registration. All issuances were as a result of private negotiation, and not pursuant to public solicitation. In addition, we believe the shares were issued to “accredited investors” as defined by Rule 501 of the Securities Act.

Issuer Purchases of Equity Securities

A summary of our purchases of DXP Enterprises, Inc. common stock during the ~~second~~first quarter of fiscal year ~~2021~~2022 is as

follows:


			Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) (2)				Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) (2)
		Apr 1 - Apr 30	330	$	30.20	—	$	—		Jan 1 - Jan 31	58,927	$	25.66	58,887	$	49,982
		May 1 - May 31	1,690	32.23		—	85,000			Feb 1 - Feb 28	842	29.27			49,982
		Jun 1 - Jun 30	1,014,149	28.77		1,014,053	55,826			Mar 1 - Mar 31	4,646	28.30			49,982
		Total	1,016,169	$	28.78	1,014,053	$	55,826		Total	64,415			58,887	49,982

(1)	(1)	There were $1.0 million shares repurchased as part of our publicly announced share repurchase program and there were 2,116 shares transferred from employees in satisfaction of minimum statutory tax withholding obligations upon the vesting of restricted stock during three months ended June 30, 2021.							(1)	There were 5,528 shares transferred from employees in satisfaction of minimum statutory tax withholding obligations upon the vesting of restricted stock during three months ended March 31, 2022.
(2)	(2)	On May 12, 2021, the Company announced the Share Repurchase Program pursuant to which we may repurchase up to $85.0 million or 1.5 million shares of the Company outstanding common stock over the next 24 months. As of June 30, 2021, $55.8 million remained available under the $85.0 million Share Repurchase Program.							(2)	On May 12, 2021, the Company announced the Share Repurchase Program pursuant to which we may repurchase up to $85.0 million or 1.5 million shares of the Company's outstanding common stock over the next 24 months. As of March 31, 2022, $50 million or 256 thousand shares remained available under the $85.0 million Share Repurchase Program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

ITEM 4. MINE SAFETY DISCLOSURES.

None.

ITEM 5. OTHER INFORMATION.

None.

2624

ITEM 6. EXHIBITS.


3.1			Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form on Form S-8, filed with the Commission on August 20, 1998. File No. :333-61953).


3.2			Bylaws of DXP Enterprises, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 10, 2018 (File No. 000-21513)., as amended on July 27, 2011.


3.3			Amendment to Section 3.4 of the Bylaws of DXP Enterprises, Inc., effective January 1, 2022. Bylaws, as amended on April 23, 201 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K (File No. 000-21513 : 21860170 , filed with the Commission on April 27, 2021).
* 10.1			Form of Indemnification Agreement between DXP Enterprises, Inc. and each of its directors.
* 22.1			Subsidiary Guarantors of Guaranteed Securities
* 31.1			Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act, as amended.


* 31.2			Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act, as amended.


* 32.1			Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


* 32.2			Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*101			The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2021,~~2022, formatted in Inline eXtensible Business Reporting Language (iXBRL), (i) Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income, (ii) Unaudited Condensed Consolidated Balance Sheets, (iii) Unaudited Condensed Consolidated Statements of Cash Flows, (iv) Unaudited Condensed Consolidated Statements of Equity, and (v) Notes to Unaudited Condensed Consolidated Financial Statements.
*104			The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2021~~2022 formatted in Inline XBRL.

Exhibits designated by the symbol * are filed or furnished with this Quarterly Report on Form 10-Q. All exhibits not so designated are incorporated by reference to a prior filing with the Commission as indicated.

2725

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DXP ENTERPRISES, INC.

(Registrant)

By: /s/ Kent Yee

Kent Yee

Senior Vice President and Chief Financial Officer

(Duly Authorized Signatory and Principal Financial Officer)

Dated: ~~November 5, 2021~~May 13, 2022

2826


	For the Three Months Ended June 30, 2020						For the Six Months Ended June 30, 2020
	As Previously						As Previously
	Reported		Adjustments		As Restated		Reported		Adjustments		As Restated
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Sales	$	251,401	0		$	251,401	$	552,384	0		$	552,384
Cost of sales	181,705		(385)		181,320		398,703		486		399,189
Gross profit	69,696		385		70,081		153,681		(486)		153,195
Selling, general and administrative costs	62,943		—		62,943		136,013		(1,275)		134,738
Income before income taxes	2,690		385		3,075		10,062		789		10,851
Provision for income taxes	610		100		710		2,334		162		2,496
Net income	$	2,080	$	285	$	2,365	$	7,728	$	627	$	8,355

Basic earnings per share	$	0.12	0		$	0.14	$	0.44	0		$	0.48

Diluted earnings per share	$	0.12	0		$	0.13	$	0.42	0		$	0.45


	As				As
BALANCE SHEET (AT DECEMBER 31, 2020):	Reported		Adjustments		Restated
Cash and restricted cash	$	117,444	$	1,975	$	119,419
Accounts Receivable	163,429		3,512		166,941
Inventory	97,071		—		97,071
Federal income taxes receivable	5,632		(2,645)		2,987
Goodwill	248,339		13,428		261,767
Total Assets	$	851,861	$	16,270	$	868,131

Accounts Payable	75,744		(10,895)		64,849
Other current liabilities	20,834		13,895		34,729
Total Liabilities	$	503,995	$	3,000	$	506,995

Cumulative Translation Adjustment	(21,842)		3,829		(18,013)
Retained Earnings	176,637		9,441		186,078
Equity	347,866		13,270		361,136
Total Liabilities & Equity	$	851,861	$	16,270	$	868,131


	Three Months Ended June 30,		Six Months Ended June 30,
(in millions, except per share data)	2021			2021
Total number of shares purchased	1.0			1.0
Amount paid	$	29.2		$	29.2
Average price paid per share	$	28.77		$	28.77