DXP ENTERPRISES INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Results: Third quarter total revenue was $47.9 million, up 12.8% year-over-year. Adjusted EBITDA was $52.4 million, up 19.1% year-over-year. Gross margin was 30.9%, a 94 basis point improvement year-over-year. SG&A increased $16.8 million year-over-year, with SG&A as a percent of sales at 22.5% vs 21.4% in Q3 2023.
• Business Segments: IPS grew 52.3% year-over-year; Service Centers grew 7.6% year-over-year; SCS grew 0.7% year-over-year. Operating income margins were 20.3% for IPS, 14.6% for Service Centers, and 8.4% for SCS.
• Acquisitions: Closed seven acquisitions year-to-date, with two more expected before Q1 2025. Recent acquisitions include a water/wastewater acquisition in Nebraska and a vacuum pump acquisition in California.
• Outlook: Focus on organic and acquisition growth, improving margins, and investing in people and technology to drive long-term growth.

Segment Performance

• Innovative Pumping Solutions (IPS): Grew sales 52.3% year-over-year to $89.8 million, contributing 18.99% to total segment mix. Energy-related and water/wastewater bookings/backlog are increasing; DXP Water is 45% of IPS sales year-to-date vs 31% last year.
• Service Centers: Sales grew 7.6% year-over-year to $316.8 million, contributing 66.99% to total segment mix. Regions like North Central, North Texas, South Rockies, Southwest, and Canadian rotating equipment had year-over-year growth.
• Supply Chain Services (SCS): Sales were flat or grew 0.7% year-over-year to $66.2 million, contributing 14.01% to total segment mix. Anticipates increase in new accounts in Q4 2024 and Q1 2025, with investment in a customer care model.

Guidance

• No formal guidance provided, but key KPIs like sales per business day are mentioned. Fourth quarter is historically softer, but bookings and backlog remain strong. Adjusted EBITDA margins are expected to remain in double digits.

Risks

• No specific risks detailed in the transcript, but general mention of factors in SEC filings that may materially affect the business.

Question and Answer

• Q: On acquisitions, how many closed year-to-date and outlook for more? A: Kent Yee stated they closed five acquisitions by the end of Q3, with two more closed subsequent to the quarter end, totaling seven year-to-date, and expect to close at least two more before the end of Q1 2025.
• Q: Fourth quarter revenue outlook? A: David Little noted historically Q4 is softer, and while bookings and backlog are strong, recognizing revenue in Q4 is expected to be a bit soft.
• Q: Refinancing impact on interest expense? A: Kent Yee said interest expense run rate is expected to be approximately $15.5 million to $16 million per quarter, with benefit from a 100 basis points reduction and dry powder to fuel acquisition activity.
• Q: Seller expectations on acquisitions? A: Kent Yee mentioned seller expectations currently appear reasonable, with valuations fair and the pipeline remaining active.
• Q: Potential sale of portfolio pieces? A: David Little stated consideration of selling non-fitting pieces is a Board consideration, but focus is on growth and acquisitions, not typical of private equity approach