DXP Enterprises, Inc.

Thank you for standing by. My name is Eric and I will be your conference operator today. At this time, I would like to welcome everyone to the DXP Enterprises Incorporated fourth quarter 2024 earnings release 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 withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Kent Yee, Chief Financial Officer. Please go ahead.

Thank you, Eric, and thank you, everyone. This is Kent Yee, and welcome to DXP's Q4 2024 conference call to discuss our results for the fourth quarter and fiscal year ending December 31, 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 risk factors that we believe may have a material effect on our business on an ongoing basis are contained in our SEC filings. 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 our fourth quarter and fiscal 2024 performance and financial results. David?

Thanks, Ken. And thanks to everyone on our 2024 fourth quarter and fiscal 2024 conference call. I am pleased to report another record year for our key financial metrics, sales, sales per business day, gross profit margins, and adjusted dividend margins. These results demonstrate the power of our people, products, and processes to serve the needs of our customers. They also highlight the benefits 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 fiscal 2024 results with you on behalf of over 3,028 DX people. Congratulations to all our stakeholders and a special thanks to our DX people you can trust. Physical 2024 was another successful year for DXP, growing sales 7.4% to $1.8 billion. We are excited to move into physical 2025 with the momentum and results of our 2024. DXP had another year of winning at max margins and gross profit margins increased by 77 basis points to 30.9%. Fiscal 2024 was about winning at max margins while also operating efficiencies and investments. We accomplished this goal by either maintaining or increasing margins on our business segments and executing seven acquisitions in physical 24. Physical 24 was a record year in terms of sales dollars, achieving new high sales watermark for DXP while achieving the second physical year of 10% plus adjusted EBITDA margins. We continue to successfully execute on our in-market goals of diversification and scale. And at the end of physical 24, Oil and gas was 23% of our business, followed by water and wastewater and chemical at 10%, and food and beverage and manufacturing at 7%, and general industry at 13%. In our words, DXP has continued to deliver on balancing our risks from an in-market perspective and we have experienced that in the last two years and specifically in 2024. We look forward to the interplay of these markets in 2025. Thank you DX People Sales and Operational Professionals for teaming up together and winning for our customers and stakeholders. Thank you to our corporate support team for their effort to support both internal and external customers. And thank you, DX people, for an awesome year. Our future looks bright. In physical 2024, I mentioned we continue to soundly execute on diversifying our end markets with a focus on water and wastewater and other industrial markets continuing to execute on acquisitions. adding seven great companies during the year, including Hennessy, Mechanical Seal, Cappy Associates, ProSeal, Manufacturer's Edge, Hardwell, MaxPak, and BGA Gurney. We also continued executing on our share repurchase program and refinanced our debt in the second half of 2024, positioning DXP for organic and in organic growth in 2025. We continue to be excited about the future and delivering a differentiated customer experience, creating an engaging winning culture for DXP and investing in the business to strengthen our core capabilities and drive long-term growth. For physical 2024, total DXP sales were up 7.4%. operating income was up 4.8% compared to 23. Physical year 2024 sales and adjusted EBITDA were $1.8 billion and $191 million, respectively, and adjusted EBITDA margins of 10.62%. Our strategy has always been to combine physical strength, talent, resources, technology, and capabilities of a large company with the fast flexibility entrepreneurial capabilities of local businesses 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, 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 business day standpoint, DXP experienced continued improvement throughout the year with Q1 averaging 6.55 million sales per business day, ending the Q4 averaging 7.595 million sales per business day. Total DXP sales for Q4 were 470.9 million or 7.595 million per business day. Our profits for the quarter were positively impacted by a sequential increase in gross margins as well as an increase in SG&A associated with continued investment in our business. However, in the midst of continued change and growth, our year over year earnings showed improvement, resilience, and we grew diluted earnings per share. Again, thank you to the 3,028 DX people for your hard work and dedication and finishing the year as strong as possible. It is always my pleasure to share our fourth quarter and year-end financial results on your behalf. In terms of cash flow and liquidity, we generated $77 million of free cash flow in the physical 2024, which reflects DXP's focus on generating consistent cash flow while investing in related working capital as the business continues to grow. This combined with a flexible capital structure put us in a position where we could keep executing on our acquisition strategy as well as return capital to our shareholders via opportunistic share repurchase. As we discussed, acquisitions have continued to diversify our in-market exposure and position us well through various economic cycles And we are excited about 2025 and the growth we are pushing to see both organically and through acquisitions as we continue to have a strong pipeline of opportunities. We are excited to have seven new companies join us during the year of 2024. On top of the three we completed during physical 2023. All of our acquisitions have been great additions to DXP family. To all of our recent acquisitions, welcome to DXP, and we are excited to support your future growth as a part of DXP. 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 evidenced by our sales growth, improved gross profit margins, acquisitions, and the overall teamwork of the DX people. We continue to build our capabilities to provide complementary sets of products and services in all our markets, which makes DXP very unique in our industry and gives us more ways to help our customers win. We also are constantly looking at reviewing opportunities where we can grow market share. We complement our strategy with relentless drive for progress that includes business and operational initiatives that we believe will allow us to steadily improve our performance for our stakeholders. As we go into 2025, we're excited about the opportunity ahead and the potential DXP has to continue to scale and grow within existing and new markets. Total DXP sales for physical 2024 were up 7.4%, with innovative pumping solutions leading the way growing 47.7% year-over-year to $323 million, followed by service centers growth of 1.9% to $1.2 billion, and then supply chain services at $256.4 million. In terms of IPS, Innovative Public Solutions, as we discussed in more detail in Q3, we have two broad businesses tied to capital budgets and project work. DXP's heritage energy related project work and DXP's water. For physical 2024, DXP's water is 44% of IPS's sales last year. It was 32% last year. I'm sorry. Yeah, DXP's 44% of DXP's sales and then last year was 32. As we grow our DXP water platform, we have increased both margins and operating income margins for the segment and for DXP. DXP water backlog continues to grow both organically and through acquisitions. In fiscal 2024, we added four acquisitions to the DXP water, including Hennessy, Cappy Associates, Hartwell Environmental, and BGA Gurney. Our energy-related bookings and backlog continues to show resilience and performance above our long-term averages set at all-time highs. Our Q4 average energy backlog continues to stay ahead of DXP's average going back to 2017. Additionally, our year-to-date average continues to exceed our long-term average IPS backlog going back to 2015. which we highlighted occurred for the first time in the second quarter of 2023 and continues as we move forward to fiscal year 2025. What this indicates is that we are continuing to give bookings and we feel good at this point in the cycle on energy and waste and wastewater related project work. We look forward to seeing how this impacts our results and project revenue both in energy and water and wastewater as we move through 2025. As we maintain growth, our main focus within IPS will be managing to 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. In terms of service centers, the diversity of in-markets, multiple product division approach, and our MRO nature within service centers allows us to continue to remain resilient and continue to experience top-line year-over-year growth in fiscal 2024. From a regional perspective, regions that experienced year-over-year growth included North Central, South Rockies, Southwest, our Canadian rotating equipment business. We continue to expect our end markets will remain constructive over the near term. We have also seen in our U.S. safety services division and metalworking product divisions, which is great to see. Supply chain services experienced a slight decrease year-over-year primarily due to some facility foreclosures by our customers and small declines across our energy-related SES sites. That said, SES has also invested in customer care model, allowing customers to utilize DXP's remote technology within the need for a full-time on-site presence. This model enables DXP to extend SES's technology to accounts with smaller sites and expand the business relationship. SES remains committed to expanding our industrial customer base through enhanced marketing and lead generation tools. And as we go into physical 25, we believe demand for SES's services is increasing because of the proven technology and efficiency they perform for all of their industrial customers. DXP's overall gross profit margins for the year were 30.9%, a 77 basis point improvement over 2023. This displayed constant gross margin performance within our different segments throughout the year and added accretive gross margin gross margins through um we added the creative gross profit margins through our acquisitions that said service centers had meaningful improved gross margins year over year ips sales contribution was 18% of total sales in 2024 and 13% of total sales in 2023. Overall, DXP produced adjusted EBITDA of $191.3 million or an increase of 9.8% year-over-year. Adjusted EBITDA as a percent of sales was 10.62% or an increase of 24 basis points compared to 2023. In summary, we are pleased with our overall performance in 2024. We look to continue to drive improvement in our organic sales and marketing strategies and drive further sales growth through acquisitions and anticipate fiscal 2025 to be focused on maintaining margins while driving and laying the groundwork for long-term operating efficiencies. overall through our strategic investments and initiatives we will remain focused on providing world-class tools processes training and technology to deliver value to our customers and suppliers and help our dx people be more productive so they can better help our customers win i would like to sincerely thank all our dx people who continue to show up to work with their passion commitment teamwork and selfless service We have a tremendous team, and it is an honor to deliver value for all our stakeholders. I am pleased with our performance in Physical 24. I'm proud of our efforts to continue to improve. We are growing sales and access of market and expect the same in the near future. We expect to drive SG&A leverage, manage working capital, generate free cash flow, And if organic sales slow, then free cash flow will grow, and we will take advantage of the economy to grow profitability both organically and through acquisitions. If inflation rears its head, DXP is not concerned. As a distributor, we pass on increases to our customers. DXP is experienced in navigating inflationary environments. We have grown sales on a compounded annual growth rate of over 15.7% since 2020. We have achieved new highs in both sales and profitability, and I would like to thank our stakeholders and especially our DX people. With that, I'll now turn it back over to Ken.