DXP Enterprises, Inc.

be a question and answer session. If you'd like to ask a question during that time, please press star followed by the number one on your telephone keypad. Thank you. I will now turn the conference over to Kent Yee, Chief Financial Officer. Kent, you may begin.

Thank you, Krista. This is Kent Yee, and welcome to DXP's Q3 2023 conference call to discuss our results for the third quarter ending September 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 it 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, DXB 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 third quarter performance and financial results. David?

Thanks, Kent. Thanks to everyone on our 2023 third quarter conference call. Kent, we will take you through the key financial details after my remarks, and after our prepared comments, we will open for Q&A. It is my privilege to share DXP's third quarter results with you on behalf of over 2,799 DX people. Congratulations to all our stakeholders and a special thank you to our DX people you can trust. We are pleased to see in-market demand and DXP's performance continue through Q3 and remain at record levels as we move through the second half of 2023. This allows us to achieve another quarter of both solid sales growth and 10% plus EBITDA margins. We are pleased to announce strong third quarter results with sales, operating income, and earnings per share all up over the prior year. This is a great way to start the second half of fiscal 2023. We continue to deal with the macro uncertainty and the impacts of inflation and elevated interest rates. but we remain focused on serving our customers, providing products and services that help them save money, consolidate their MRO spend, manage inventory, provide solutions to solve their evolving needs. Being customer-driven and growing sales profitably is our goal. We continue to focus on driving organic and acquisition growth, increasing gross profit margins, and increasing productivity. Our execution has resulted in the fiscal 2022 and 23 top line growth and bottom line organic and acquisition growth. That said, our growth has not been as large as we would like, so we expect to add some acquisitions to our results as we close out fiscal year 2023 and going into fiscal year 2024. We continue to be excited about the future and delivering differentiated customer experiences, creating an engaging, winning culture for DX people, and investing in our business to strengthen our core capabilities and drive long-term growth. Year-to-date through September 30th, total sales are up 18.3%, and operating income is up 46.9%. Last 12-month sales adjusted EBITDA were $1.68 billion and $164 million respectively in EBITDA margins for a margin of 9.8%. Moving to our third quarter results, total DXP revenue of $419.2 million for the third quarter of 2023 was an 8.3% increase year-over-year with adjusted EBITDA of $44 million for the third quarter. In terms of Q3 financial results, service centers led the way, growing sales 13.2% year-over-year, followed by innovative pumping solutions essentially performing flat at $59 million in sales, and supply chain services declined 3.5% or $2.4 million to $65.8 million year-over-year. In terms of service centers, the diversity of our end markets and our MRO nature within service centers allows us to continue to remain resilient and continue to experience consistent top-line year-over-year growth. From a regional perspective, a majority of our regions continue to experience year-over-year growth, including the North Rockies, Northern Central, Alaska, and Texas Gulf Coast. Additionally, we continue to see strength in our air compressor product division. We continue to expect that our end markets will remain constructive over the near future. As it pertains to energy, we believe that we could be in the early stages of an upcycle supported by the energy transition, which has been consistent with our commentary over the last three quarters. In terms of IPS, Innovative Pumping Solutions, our Q3 average IPS backlog continues to stay ahead of the physical 2022 average. Additionally, our year-to-date average continues to exceed our long-term average of IPS going all the way back to 2015, which we highlighted and occurred for the first time in the second quarter and continues to move into fiscal year 2024. What this indicates is that we are continuing to give bookings and we are, as we mentioned earlier, 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 23 and into 24. 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, water and wastewater, and pricing appropriately given the supply chain dynamics and ebbs and flows of inflation. Supply chain services experienced a decline year over year, primarily due to some facility foreclosures with our customers, as well as streamlining and the efficiencies we brought to our new diversified chemical customer that we added last year. This happens as part of our value proposition, but we do not anticipate any further material saving impact on DXP. As we move into Q4, we will look for new customer additions as well as continuing to manage procuring products and managing inflation both year-over-year and sequential growth will flatten out until we start ramping new customers. That said, demand for SES services is increasing because of the proven technology and efficiency they perform for all their industrial customers. But the sales cycle can be protracted, and we will look to our SES leaders to add new customers as we move into 2024. DXP's overall gross profit margins for the third quarter were 29.9%. a 113 basis point improvement over 22, and down 85 basis points sequentially. Overall, I'm pleased with our gross margins and our steady improvement over the last seven quarters. SG&A for the third quarter increased 4.6 million versus Q3 of 22, but SG&A as a percent of sales declined going from 22% in Q3 of 22 to 21.4% in Q3 of 23. SG&A continues to reflect our investment in our people and organization, and as always, it is my privilege to share DXP's financial results on behalf of these DXP people. DXP's overall operating income was 8.6%, or $35.9 million, which included corporate expense and amortization. This reflects 170 basis point improvement in margins over Q3 of 22. That being said, we still feel there is opportunity in operations to be more efficient. Service centers operating income margins were 14.1%, and IPS operating income margins were 18.9%, and supply chain services operating income margin was 8.5%. Overall, DXP produced adjusted EBITDA of $44 million versus $34.3 million in 2022. This turned into a year-over-year increase of $9.7 million, or 28.3%. Adjusted EBITDA as a percent of sales was 10.5%, up 164 basis points versus Q3 of 2022, and essentially flat with Q2 of 23. I am pleased by our performance in the third quarter. We still have substantial work to do to achieve our goals, but I am confident the team will continue to execute. We are growing sales in excess of market and expect that in the near future. We expect to drive strong SG&A leverage, manage working capital, and generate free cash flow. If organic growth slows, then free cash flow will grow, and we will take advantage of the economy to grow profitably through acquisitions. We have grown sales on a compounded annual growth rate of over 23% since COVID, and we have achieved new highs in both sales and profitability. And I would like to thank our stakeholders and especially our DXP people. With that, I will now turn it back over to Kent to review the financials in more detail. Thank you, David.