DXP Enterprises, Inc.

Ladies and gentlemen, thank you for standing by. My name is Desiree and I will be your conference operator today. At this time, I would like to welcome everyone to the DXP Enterprise 2023 fourth quarter and fiscal year 2023 results 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 during this time, simply press star followed by the number one on your telephone keypad. If you would like to resolve your question, again, press the star one. I would now like to turn the conference over to Kent Yee, Chief Financial Officer. Please go ahead.

Thank you, Desiree, and thank you, everyone, for joining us today. This is Kent Yee, and welcome to DXP's Q4 2023 conference call, to discuss our results for the fourth quarter and fiscal year ending December 31st, 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. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis basis are contained in our SEC filings. However, DXP assumes no obligation to update that information because 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 the fourth quarter and fiscal 2023 performance and financial results.

Thanks, Kent, and thanks to everyone on our 2023 fourth quarter and fiscal 2023 conference call. I am pleased to report record full-year results for our key financial metrics, sales, sales per day, gross profit margins, and adjusted EBITDA margins. These results demonstrate the power of our DX people, products, processes to serve the needs of our customer. They also highlight the benefit of our broad and diverse exposure to different end markets and regions and our disciplined capital allocation strategy. It is my privilege to share DXP's fourth quarter and Physical 2023 results with you on behalf of over 2,837 DX people. Congratulations to all our stakeholders and a special thanks to our DX people you can trust. Physical 2023 was another successful year for DXP, growing sales 13.4% to 1.7 billion. We are excited to move into physical 2024 with the momentum and results of 2023. One of our key long-term themes, winning at max margins, converted into improving gross profit margins by 160 basis points to 30.1%. We are transitioning our theme to 2024 from Winning at max margins to winning at max margins while maximizing operating efficiencies and investments. Physical year 2023 was a record year in terms of sales dollars, achieving a new high sales watermark for DXP, while also achieving the physical year of 10% plus adjusted EBITDA margins. We executed on our constant goal of 10% plus sales growth and 10% EBITDA margins. And we will look to maintain that as we enter into fiscal 2024 and thus focusing on driving operating efficiencies while still growing the business. We continue to successfully execute on our in-market goals of diversification and scale. At the end of physical 2023, energy was 25% of our business, followed by chemical at 10%, and with water and wastewater and food and beverage at 7% each, and manufacturing and general industry at 8% and 12% respectively. In other words, DXP has continued to deliver on balancing our risk from an in-market perspective. And we see that in our physical 2023 results and we look forward to the interplay of these markets in 2024. Thank you DXP sales and operational professionals for teaming up together and winning for our customer and stakeholders. Thank you to our corporate support team for their efforts to support both internal and external customers. And thank you DXP for an awesome year. Our future looks bright. In physical 2023, I mentioned we continue to soundly execute on diversifying in markets with a focus on water and wastewater and other industrial markets. We also continue to execute on acquisitions, adding three great companies during the year, including Florida Valve, Rordan, and Alliance Pump and Mechanical. also executing on our share repurchase program and refinancing our debt in the second half of 2023, cleaning up our capital structure and positioning DXP for organic and inorganic growth in 2024. We continue to be excited about the future and delivering a differentiated customer experience, creating an engaging winning culture for DXP and investing in our business to strengthen our core capabilities and drive long-term growth. For fiscal 2023, DXP's sales were 13.4%, and operating income was up 41.9% compared to 2022. Physical year 2023 and adjusted EBITDA were $1.6 billion and $174 million superior. respectively, with adjusted EBITDA margins of 10.38%. Our strategy has always been to combine the financial strength, talent, resources, technology, and capabilities of a large company with the fast, flexible, entrepreneurial capabilities of our local business to deliver superior value to our customers and our suppliers. while providing better growth opportunities for our DX people. We continue to believe in this approach and look to renew our commitment to people, processes, and resources and technology as we scale DXP and remain focused on doubling the size of our business over the next three to five years while making strategic investments that match the evolution of DXP. From a sales per day standpoint, DXP experienced continued improvement throughout the year, with Q1 averaging 6.629