DXP Enterprises, Inc.

Thank you for standing by and welcome to the DXP Enterprises first quarter earnings call. All lines have been placed into listen-only mode. 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 withdraw your question, press star one again. And finally, a reminder that this conference is being recorded. Now I would like to turn the call over to Kent Yee, Chief Financial Officer Kent, please go ahead.

Thank you. This is Kent Yee and welcome to DXP's Q1 2024 conference call to discuss our results for the first quarter ending March 31st, 2024. 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 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 gap to non-gap 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 first quarter performance and financial results.

Good morning, and thank you, Kent, and thanks to everyone for joining us today on our physical 2024 first quarter conference call. We are off to a great start in 2024. We remain highly focused on providing expertise our customers have come to expect from DXP and finding ways to help them manage their supply channel, increase their uptime, increase productivity, achieve their ESG objectives, and successfully run their operations. Many customers, especially those in industrial, energy, and utility space, continue to see solid in-market demand for their products. DXP remains committed to our overall focus of being customer-driven experts to keep their operations running and their people safe. This consistent approach has fueled our financial results. First quarter adjusted EBITDA of $40.3 million and adjusted diluting earnings per share of $0.74 was supported by sequential sales growth of 1.4%. Thanks to the efforts of all our DX people across the company, as we continue to build on positive financial results in fiscal 2023 and driving further operational improvements while performing for our customers. I personally want to thank all our DXP stakeholders, in particular all our DXP people, for their determination and hard work as we continue to grow and improve the business. We are encouraged by our results and remain focused on growing our business organically and inorganically in fiscal year 2024. I will begin today with some perspective on our first quarter and thoughts on the remainder of 2024. Kent will then take you through the key financial details after my remarks. After his prepared comments, we will open for Q&A. Overall, we are pleased with our first quarter results. Our first quarter highlights good execution and a number of normalized trends across DXP with a lot of effort now focused on capturing additional market share versus managing and working through inflation. We also experienced inorganic growth by continued execution of our acquisition strategy to accelerate our in-market diversification efforts. We closed three great acquisitions in the first quarter, including the addition of an industrial and seal company, ProSeal, and two additional DXP water acquisitions, Henze Mechanical Sales, and Cappy & Associates. To our new DX people, welcome to DXP, and it's great to have you as a part of DXP. That said, we are building more resilient, diversified business that can generate solid performance in uncertain economic conditions. And as we discussed last year, we believe you're seeing and continue to see evidence of these efforts in Q1. DXP's broad-based industrial end markets which is 75 percent of our business today, continues to show resilience primarily due to price increases and, in DXP's case, continued growth in demand and market share. The ISM PMI Manufacturing Index, which gives us an indication of how DXP's broad industrial markets will perform, moved from 49.1 reading in January to a 50.3 reading in March. This trend is technically moving from contraction to growing territory, but in April, we went back to a reading of 49.2. We continue to believe in today's inflationary environment, this slight contraction is getting offset by price increases, still moving through the supply channel, and in DXP's case, continued growth in demand because of the markets we serve and our growth strategies. We will continue to monitor as we move through 2024. Oil and gas, which is the remaining 25% of DXP, has shown consistent demand through 2023 and the early parts of 2024, and we anticipate growth in the future. Given the geopolitical circumstances and the overall relative strength in prices, most of our business in oil and gas is tied closer to actual production and increases in capital budgets. We continue to experience a pickup in sales activity in Q1, which reflects the increase in backlog we continue to see. Regarding broader demand, underlying trends remaining consistent with the fourth quarter and trends were the strongest in March, as is typical with sales per business day, going from 5.9 million per day in January to 7.5 million per day in March. Total DXP sales for Q1 increased 1.4% sequentially and are 412.6 million, or an average of 6.6 million per business day for the first quarter. Thank you to the 2,920 DX people for your hard work and dedication. In terms of Q1 financial results, Innovative Public Solutions led the way, growing sales 3.2% sequentially and 21% year-over-year followed by service centers growing 1.1% sequentially, and then supply chain services also growing sales 1.1% sequentially. In terms of IPS, Innovative Plumbing Solutions, our Q1 average IPS energy backlog continues to stay ahead of all averages going back to 2015, with the exception of 2018 average. Our start in 2024 had meaningful bookings in the months of February and March, and this signals to us that we should have strong energy product revenues over the next 9 to 15 months. We are continuing to get bookings, and as we mentioned earlier, we are likely in the front end of a good cycle on energy-related project work. that we look forward to as we move through 2024. Service centers keep essential customers running with MROP, maintenance, repair, operating, production, products and services necessary for the customer to stay in business. The diversity of the end markets and our MRO nature within service centers allows us to continue to experience balanced sales growth through the first quarter. Regions that experienced sequential as well as year-over-year sales growth included South Atlantic, the North Central, additionally Canadian rotating equipment and seal division from a geographic and product perspective experienced sequential and year-over-year sales growth also. On notable regions that contributed during the quarter included Southwest, South Central, and South Rockies. Slide chain services increased 1.1% sequentially and experienced a 7.6% decline year over year, primarily due to some facility closures with our customers, as well as the streamlining and efficiency we brought to our new diversified chemical customer we added last year. We mentioned this in Q3 of last year, and we will look for these we will look for customer additions as well as to continue to manage procurement products and managing inflation. But both year-over-year and sequential growth will flatten until we start ramping new customers. That said, demand for SES services is increasing because of the proven technology and efficiencies they perform for all their individual customers. But the sales cycle can be protracted, and as we look to our CSC leaders to add new customers as we move forward in 2024. DXP's overall gross profit margins for the quarter were 30%, a 55 basis point improvement over Q1 of 2023. A special thanks to our DX people who have stayed on top of supplier product increases and increased labor costs and overall efficiencies. Overall, DXP produced EBITDA of $40.3 million and EBITDA as an apprentice percent of sales of 9.8%, which is below our stated goal of 10% plus. Regarding capital allocations, we continue to make strategic 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. During this quarter, we purchased 326,000 shares amounting to $16.8 million. We produced over $24.1 million in free cash flow, a solid start to the year, and a good benchmark for our expectations going forward. Let me conclude my remarks by saying that I am encouraged with our continued sequential improvement in sales and profitability. I believe DXP is well positioned. We continue to make progress on our growth strategies and our commitments to customers is stronger than ever. We are complementing these efforts with a focus on improving efficiency while making strategic investments in the business. We are driving growth and improvements at DXP. And we look forward to navigating and working through physical 2024. Finally, I would like to thank our DX people for a great quarter and a positive start to the beginning of 2024. We're excited for what is next. With that, I will now turn it back to Kent to review the financials in more detail.