DXP Enterprises, Inc.

Good morning, ladies and gentlemen. Thank you for standing by. My name is Erica, and I will be the conference operator today. At this time, I would like to welcome everyone to the DXP Enterprises, Inc. 2023 Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise after the speakers there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I'm now turning the call over to Kent Yee, CFO.

Thank you, Erica, and thank you to everyone for joining us today. This is Kent Yee, and welcome to DXP's Q2 2020-23 conference call to discuss our results for the second quarter ending June 30th, 2023. Joining me today is our chairman and CEO, David Little. Before we get started, I want to remind you that today's call is being webcast and recorded and includes forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. 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 chairman and CEO, to provide his thoughts and a summary of our second quarter performance and financial results.

Good morning, and thank you, Kent. Thanks to everyone for joining us today on our fiscal 2023 second quarter conference call. We are pleased to see in-market demand and DXP's performance continue through Q2 and remain at record levels through the first half of 2023. This allows us to achieve another quarter of both solid sales growth and 10% EBITDA margins. Overall, we had a great second quarter and strong first half of 2023. We are establishing new highs for DXP and look forward to the second half of 2023. The first half of 2023 highlights solid execution and continued positive demand trends supported by our ability to grow organically and navigate the dynamic supply chain and pricing environment. We continue to execute our acquisition strategy to continue to grow our DXP water and wastewater platform, adding Florida valve and Rortan materials during the quarter. We continue to execute on our goals to diversify DXP's business while maintaining our commitment to foundational end markets like energy that have been and will always be a part of DXP. This is DXP's second quarter of adjusted EBITDA margins in excess of 10%, which is great to see, and we look forward to maintaining this profitability momentum. This speaks to our relentless drive we have to center our strategy around our customers, remain customer-driven experts, while creating a win-win for all our stakeholders. We remain highly focused on providing the expertise our customers have come to expect from DXP by providing more efficient solutions, reduced costs, and achieving their ESG objectives. This consistent approach has fueled our financial results. Second quarter adjusted EBITDA of 45.3 million and diluted earnings per share of $1.06 was supported by year-over-year sales growth of 16.4%. Thanks to our efforts of all our DXP people across the company, we continue to grow and further our positive momentum, driving further operational improvements while performing for our customers. Our key end markets continue to perform for DXP and potentially have secular trends that we are just beginning to see, including energy, power, chemicals, and aerospace. I personally want to thank all our DXP stakeholders, in particular all our DX people, for their determination and hard work as we continue to grow and improve the business and achieve new sales highs for our business. As we move into the second half of the year, we remain confident that our well-balanced business, strong balance sheet, exceptional teams, improved capabilities, and robust acquisition pipeline position us well to navigate the current environment and achieve continued success. I will begin today with some perspective on our second quarter and thoughts on the remainder of 2023. Kent will then take you through the key financial results after my remarks. After his prepared comments, we will open for Q&A. Again, let me thank our DXP stakeholders, in particular our DX people, for their continued efforts, adaptability as we grow and evolve DXP, into a more diversified and less cyclical business. Total DXP sales for Q2 increased 16.4% year-over-year and 1% sequentially, or $428 million, or an average of $6.8 million per business day for the second quarter. Thank you to the 2,757 DX people for your hard work and dedication. In terms of Q2 financial results, service centers led the way, growing sales 18.85% year over year, followed by supply chain services growing sales 12.29%, and then innovative pumping solutions growing sales 9.78% year over year. In terms of service centers, the diversity of in markets and MRO nature within service centers allowed us to continue to remain resilient and continue to experience consistent top line growth. Additionally, our Cisco acquisition continues to perform as we close out the physical year of Cisco being with DXP. From a regional perspective, A majority of our regions continue to experience year-over-year growth, including the Rocky Mountains, Southeast, and Texas Gulf Coast. We continue to expect that our end markets will remain constructive over the foreseeable future. As it pertains to energy, we believe we could be in the early stages of an upcycle supported by energy transition which has been consistent with our recent commentary over the last three quarters. Supply chain services continues to experience year over year due to the addition of a new diversified chemical customer during Q2 and Q3 of last year. As we move into Q3, we will look for new customer additions as we well as continue to manage procuring products and managing inflation But both year-over-year and sequential growth will flatten out until we start ramping new customers. That said, demand for SCS services is increasing because of the proven technology and efficiencies they perform for all their industrial customers. But the sales cycle can be protracted, and we will look to our SCS leaders to add new customers as we move into 2024. In terms of IPS, or Innovative Pumping Solutions, our Q2 average IPS backlog continues to stay ahead of the physical 2022 average. Additionally, our year-to-date average for the first time started to exceed our long-term average, or IPS backlog, going back to 2015. What this indicates is that we are continuing to get bookings, as we mentioned earlier, and we are likely in the front end of a good cycle on the energy-related project work that we look forward to as we move through 2023. As we maintain growth, our main focus within IPS will be managing the demand levels we have, finding opportunities in all markets such as energy, biofuels, food and beverage, and water and wastewater, and pricing appropriately given the supply chain dynamics and ebbs and flows of inflation. DXP's overall gross profit margins for the quarter were 30.8% and sequentially 133 basis point improvement over Q1 and 245 basis point improvement over Q2 of last year. A special thanks to our DX people who have stayed on top of supplier product increases labor costs, and overall efficiencies. Overall, DXP produced adjusted EBITDA of $45.3 million and adjusted EBITDA as a percent of sales of 10.6%, which reflects the operating leverage we expect to get with significant sales growth. This also marks our second sequential quarter of 10% plus EBITDA margins, and we will look for this to continue as we move through the second half of 2023. Regarding capital allocations, we continue to make investments to fuel growth and diversify DXP through acquisitions while opportunistically repurchasing shares. By balancing these two approaches, or pursuing both, we are driving long-term value for our shareholders. We are continuing to return value to our shareholders through our $85 million share repurchase program, and during the quarter we purchased 749,000 shares amounting to $23.957 million. Let me conclude my remarks by saying that I am encouraged by our continued sequential improvement in sales and probabilities. We continue to make progress on growth strategies and our commitment to customers is stronger than ever. We are driving growth and improvements at DXP, and we look forward to navigating and working through the remainder of physical 2023. Finally, I would like to thank our DXP people for achieving our goal of 10, 10, and 10 again, and we aim to keep the streak alive. Q2 was another great quarter as we continue to have a successful year in 2023. With that, I will now turn this back over to Kent, and he will review the financials in more detail.