DXP Enterprises, Inc.

Good morning. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to DXP Enterprises 2022 First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Kent Yee, Chief Financial Officer, you may begin your conference.

Thank you, Julianne. This is Kent Yee, and welcome to DXP's Q1 2022 conference call to discuss our results for the first quarter ending March 31st, 2022. Joining me today is our chairman and CEO, David Little. Before we get started, excuse me, I wanted to remind you that today's call is being webcast and recorded and includes forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis are contained in our SEC filings. However, DXP assumes no obligation to update that information as a result of new information or future events. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our earnings press release. The press release and an accompanying investor presentation are now available on our website at ir.dxpe.com. I will now turn the call over to David Little, our CEO and Chairman, to provide his thoughts and a summary of our first quarter performance and financial results.

Good morning and thank you Kent. Thanks to everyone for joining us today on our fiscal 2022 first quarter conference call. First let me say that following a partial recovery in 2021, We are off to a great start in 2022. I personally want to thank all our DXP stakeholders, in particular, all our DX people for their determination, hard work, and grit as we turn the corner and momentum appears to be building in our business. With 25% organic sales growth, adjusting for the four acquisitions we did at the end of 2020, and 30% overall year-over-year sales growth in Q1, we are off to a great start this year. This is DXP's first quarter of meaningful organic growth in total sales and EBITDA, which is great to see. That said, as we get to the tail end of the COVID crisis, we are all facing new challenges that DXP is prepared to navigate. We are encouraged by the improvement in our results and remain focused on growing our business organically and inorganically in the fiscal year 2022. Although much remains uncertain, including inflationary pressures, supply chain disruptions and constraints, and the geopolitical impact of Russia invasion of Ukraine, I am proud that the DXP people effectively support their customers in this type of environment. This is a testament to the relentless drive we have made to center our strategy around customers and to remain customer driven experts. I will begin today with some perspective on our first quarter and thoughts on the remainder of 2022. Kent will then take you through the key financial details after my remarks. And after his prepared comments, we will open up to Q&A. Overall, we had a great first quarter that highlights good execution and a number of positive trends developing across DXP, including organic growth in most of our industrial markets, plus growth in new markets such as biofuels, carbon capture, air, and water and wastewater. We also experienced inorganic growth by continued execution of our acquisition strategy to accelerate our in-market diversification efforts in compressed air and water and wastewater. We are seeing increases in oil and gas CapEx budgets. That said, we are building a more resilient, diversified business that can generate solid performance in more uncertain markets, and we believe you are starting to see evidence of these efforts in Q1. Again, let me thank all our DXP stakeholders in particular, all our DXP people for their continued efforts and adaptability as we grow and evolve DXP into a more diversified and less cyclical business. DXP's broad base industrial end markets, which is 73% of our business today, appears to be showing some deceleration in growth but remains above economic contraction and shows signs of consistent demand and activity. The ISM and PMI manufacturing indexes which give us an indication of how DXP's broad industrial markets will perform move from 57.6 reading in January to a 57.1 reading in March. This trend is slightly below average over the last 12 months of 59.3% and looks to be a positive indicator for the year should the trend continue. Albeit, we are at a lower level this year than we are last year. We are also excited to see momentum on this side of our business and look for this to maintain strength throughout the year. These end markets, including food and beverage, chemicals, biofuels, transportation, municipal, manufacturing, general industries, should serve us well. Oil and gas, which is the remaining 27% of DXP, is showing signs of recovery given the geopolitical circumstances and the overall relative strength in prices. A majority of our business that is oil and gas tends to lag in the rig count and is tied closer to actual production or increases in CapEx budgets. We experienced a significant pickup in organic sales activity in Q1, which reflects the increase in backlog, which began last year in Q3. The pickup is consistent with complementary around U.S. majors and smaller exploration and production companies, increasing CapEx budgets from 2021 by low double digits. We regard the broader demand recovery, underlying trends improving across business as the quarter progressed, and trends for the strongest in March, which are sales per day going from 4.1 million per day in January to 5.8 million per day in March. We believe this also reflects impacts from price increases from our suppliers. Please note that inflation is normally good for distribution companies, assuming we can pass along supplier increases. Total DXP sales for Q1 increased 9% sequentially, 30% year-over-year, or $119.4 million, or an average of $5 million per business day for the first quarter. Thank you to the 2,533 DX people for your hard work and dedication. We're excited to have Burlingame's engineers and Dryden equipment join our DXP family. They each had a great first month with DXP, and they both increased our presence in water and wastewater industry. It is always my pleasure to share our performance and financial results on behalf of everyone's efforts. DX people have continued to find ways to deliver financial results and position us well for our stakeholders in the face of extraordinary challenges. This is evident by our sequential growth, closing acquisitions, and the overall teamwork of DX people. We continue to build our capabilities to provide a technical set of products and services in all our markets, which gives DXP very unique, which makes DXP very unique in our industry and gives us more ways to help our customers win. In terms of Q1 financial results, inventory pumping solutions led the way, followed by supply chain services and then service centers in terms of sales growth. In terms of the strength of the IPS backlog, our Q1 average IPS backlog compares to our 2017 average backlog numbers, and we are continuing to grow month over month. As we transition to growth, our main focus within IPS is managing the demand level we have today, finding opportunities in other markets such as biofuels, food and beverage, and water and wastewater, and pricing appropriately given the supply chain dynamics and inflation. Supply chain services, SES, is having a great year with increased organic growth due to increased activity with existing contracts and plus several new contracts, procuring products and inflation will be SES's challenge this year. And so far, they have done an excellent job of managing these two headwinds. Demand for SES services is increasing because of the proven technology and efficiencies they perform for their industrial customers. SC, with service centers, performed the best during the last few years through COVID. As SES keeps essential customers running with MROP, which stands for Maintenance, Repair, Operating, and Production products and services necessary for the customer to stay in business, SES bookings, backlog, and revenues continue to grow at a steady pace. DXP overall gross profit margins for the quarter were 29.7%. an 83 basis point improvement over Q4. This reflects strengths within IPS and service centers and strong gross margin performance from our recent acquisitions. A special thanks to our DX people who have stayed on top of supplier product increases and labor costs. Overall, DXP produced EBITDA of $29.3 million, and EBITDA as a percent of sales was 8.9%, which reflects the operating leverage we expect with significant organic sales growth. Let me conclude my remarks by saying that I am encouraged with our continued sequential improvement in sales and profitability and firmly believe that we are well positioned to continue this growth pattern in 2022. We have managed the business through uncertain times, successfully making acquisitions, producing strong free cash flow, and continue to invest in the business that will benefit our future growth. While U.S. unemployment levels are low, wages are increasing, inflation is the highest it has been in decades, we are seeing new stress on supply chains and commodity pricings, and U.S. households are facing rising gas prices as well as higher prices for food and housing. In general, moderate inflation is good for DXP, and rising interest rates have very little financial impact, and we do not see or feel a recession coming in 2022. That said, stag inflation and recessions can be bad, And being in business since 1908, we have lived through some really tough times, and we all hope that our Federal Reserve gets this right in balancing a soft landing. The ongoing complexity in the economic outlook is certainly something we will keep our eyes on, but whatever the future holds, I believe DXP is well positioned. We continue to make progress on our growth strategy, and our commitment to customers is stronger than ever. We're driving growth and improvements at DXP, and we look forward to a successful 2022. With that, I will now turn it back over to Kent to review the financials in more detail.