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What changed in DXP ENTERPRISES INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of DXP ENTERPRISES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+223 added−285 removedSource: 10-K (2024-03-11) vs 10-K (2023-04-17)

Top changes in DXP ENTERPRISES INC's 2023 10-K

223 paragraphs added · 285 removed · 160 edited across 5 sections

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

56 edited+23 added−84 removed53 unchanged
Biggest changeGAAP net income (loss) attributable to DXP Enterprises, Inc. $ 48,155 $ 16,496 $ (29,269) Loss attributable to non-controlling interest (53) (745) (348) Provision for income taxes 17,799 3,431 (18,696) Depreciation and amortization 28,500 27,143 22,683 Interest and other financing expenses 29,135 21,089 20,571 EBITDA $ 123,536 $ 67,414 $ (5,059) EBITDA margin as % of sales 8.3 % 6.1 % (0.5) % NCI loss before tax (1) 227 993 632 Loss associated with sale of interest in VIE (2) 1,193 — — Impairment and other charges — — 59,883 Stock compensation expense 1,850 1,823 3,532 Adjusted EBITDA $ 126,806 $ 70,230 $ 58,988 Adjusted EBITDA margin as % of sales 8.6 % 6.3 % 5.9 % (1) NCI represents non-controlling interest (2) The loss associated with the sale of our interest in our VIE is included in other income and expense on our consolidated statement of operations for the year ended December 31, 2022.
Biggest changeGAAP financial measure (in thousands) : Twelve Months Ended December 31, 2023 2022 2021 Net income attributable to DXP Enterprises, Inc. $ 68,812 $ 48,155 $ 16,496 Less: Net loss attributable to non-controlling interest (NCI) — (53) (745) Plus: Interest expense 53,146 29,135 21,089 Plus: Provision for income tax expense 18,119 17,799 3,431 Plus: Depreciation and amortization 30,105 28,500 27,143 EBITDA $ 170,182 $ 123,536 $ 67,414 Plus: NCI income before tax — 227 993 Plus: other non-recurring items (1) 1,051 1,193 — Plus: stock compensation expense 3,072 1,850 1,823 Adjusted EBITDA $ 174,305 $ 126,806 $ 70,230 Operating Income Margin 8.3 % 6.6 % 3.6 % EBITDA Margin 10.1 % 8.3 % 6.1 % Adjusted EBITDA Margin 10.4 % 8.6 % 6.3 % (1) Other non-recurring items primarily include the loss associated with closing an international location for the year ended December 31, 2023 and the loss associated with the sale of a variable interest entity (VIE) for the year ended December 31, 2022. 33 Table of Contents Free Cash Flow We define and calculate free cash flow as net cash provided by operating activities less net purchases of property and equipment.
We do not expect that there will be material change in the future estimates or assumptions we use to complete the purchase price allocation and estimate the fair values of acquired assets and liabilities for the acquisitions completed in fiscal year 2022.
We do not expect that there will be material change in the future estimates or assumptions we use to complete the purchase price allocation and estimate the fair values of acquired assets and liabilities for the acquisitions completed in fiscal year 2023.
The impact of changes in key assumptions is described in Note 5 - Fair Value of Financial Assets and Liabilities . 40 Table of Contents Income Taxes The Company utilizes the asset and liability method of accounting for income taxes.
The impact of changes in key assumptions is described in Note 5 - Fair Value of Financial Assets and Liabilities . 38 Table of Contents Income Taxes The Company utilizes the asset and liability method of accounting for income taxes.
Our Free Cash Flow, which is calculated as cash provided by operations less net purchase of property and equipment, was $1.0 million, $32.8 million and $103.1 million for years 2022, 2021 and 2020, respectively. Free Cash Flow is not a measure of liquidity under U.S. GAAP, and may not be defined and calculated by other companies in the same manner.
Our Free Cash Flow, which is calculated as cash provided by operations less net purchase of property and equipment, was $94.0 million, $1.0 million and $32.8 million for years 2023, 2022 and 2021, respectively. Free Cash Flow is not a measure of liquidity under U.S. GAAP, and may not be defined and calculated by other companies in the same manner.
Certain of these industries, such as the oil and gas industry, are subject to volatility driven by a variety of factors, while others, such as the petrochemical industry and the construction industry, are cyclical and materially affected by changes in the United States and global economy.
Certain of these industries, such as the oil and gas industry, are subject to volatility driven by a variety of factors, while others, such as the petrochemical industry and the construction industry, are cyclical and materially affected by changes in the U.S. and global economy.
The historical loss rates for each respective age bucket are then adjusted for current conditions using reasonable and supportable data points. The overall allowance is adjusted accordingly based upon historical experience and economic factors that impact our business and customers. At December 31, 2022, the allowance was approximately 2.3% of the gross accounts receivable.
The historical loss rates for each respective age bucket are then adjusted for current conditions using reasonable and supportable data points. The overall allowance is adjusted accordingly based upon historical experience and economic factors that impact our business and customers. At December 31, 2023, the allowance was approximately 1.8% of the gross accounts receivable.
Compared to the U.S. statutory rate for the twelve months ended December 31, 2022, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, return to provision adjustments, and uncertain tax positions recorded for research and development tax credits and was partially offset by research and development tax credits and other tax credits.
Compared to the U.S. statutory rate for the twelve months ended December 31, 2023, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions recorded for research and development tax credits and was partially offset by research and development tax credits and other tax credits.
However, these payment terms are extended in select cases and customers may not pay within stated trade terms. The Company has trade receivables from a diversified customer base located primarily in the Rocky Mountain, Northeastern, Midwestern, Southeastern and Southwestern regions of the United States, and Canada. The Company believes no significant concentration of credit risk exists.
However, these payment terms are extended in select cases and customers may not pay within stated trade terms. 36 Table of Contents The Company has trade receivables from a diversified customer base located primarily in the Rocky Mountain, Northeastern, Midwestern, Southeastern and Southwestern regions of the U.S., and Canada. The Company believes no significant concentration of credit risk exists.
Demand for our products generally is subject to changes in the United States and Canada, and global and macro-economic trends affecting our customers and the industries in which they compete.
Demand for our products generally is subject to changes in the U.S. and Canada, and global and macro-economic trends affecting our customers and the industries in which they compete.
Year Ended December 31, 2021 compared to Year Ended December 31, 2020 For the full year 2021 to 2020 comparative discussion, see Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 incorporated by reference in this Annual Report on Form 10-K.
Year Ended December 31, 2022 compared to Year Ended December 31, 2021 For the full year 2022 to 2021 comparative discussion, see Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022 incorporated by reference in this Annual Report on Form 10-K. 32 Table of Contents Non-U.
The Company's products are marketed in the United States, Canada and Dubai to customers that are engaged in a variety of industries, many of which may be counter cyclical to each other.
The Company's products are marketed in the U.S., Canada, Mexico, and Dubai to customers that are engaged in a variety of industries, many of which may be counter cyclical to each other.
During the twelve months ended December 31, 2022 we repurchased 1.3 million shares of the Company's common stock for approximately $35.2 million compared to 1.2 million shares of the Company's stock for approximately $33.5 million for the twelve months ended December 31, 2021.
During the twelve months ended December 31, 2023 we repurchased 1.7 million shares of the Company's common stock for approximately $54.7 million compared to 1.3 million shares of the Company's stock for approximately $35.2 million for the twelve months ended December 31, 2022.
There was $428.1 million outstanding as of December 31, 2022. On June 15, 2021, the Company entered into a negotiated share repurchase agreement to repurchase certain shares of its common stock from certain of its shareholders agreeing to pay sellers over four equal quarterly installments, which are presented within the purchase of treasury stock in the cash flow statement.
On June 15, 2021, the Company entered into a negotiated share repurchase agreement to repurchase certain shares of its common stock from certain of its shareholders agreeing to pay sellers over four equal quarterly installments, which are presented within the purchase of treasury stock in the cash flow statement.
These include the Industrial Production (IP) and Manufacturing Capacity Utilization (MCU) indices published by the Federal Reserve Board and the Purchasing Managers Index (PMI) published by the Institute for Supply Management (ISM). Additionally, we track the Metalworking Business Index ("MBI"). A reading above 50 generally indicates expansion.
These include the Industrial Production (IP) and Manufacturing Capacity Utilization (MCU) indices published by the Federal Reserve Board and the Purchasing Managers Index (PMI) published by the Institute for Supply Management (ISM). Additionally, we track the Metalworking Business Index (MBI). A reading above 50 generally indicates expansion. The Company also monitors various oil & gas indicators including active drilling rigs.
Customer demand was generally healthy throughout fiscal 2022, resulting in industry expected volume growth, complemented by meaningful pricing actions taken by the Company's vendors which ultimately, get passed on to customers.
Customer demand was generally healthy throughout fiscal 2023, resulting in industry expected volume growth, complemented by additional pricing actions taken by the Company's vendors after strong pricing action in 2022, which ultimately, gets passed on to customers.
Operating income for the year ended December 31, 2022 increased by $57.9 million to $97.8 million from $39.9 million in the prior year's corresponding period. This increase in operating income is primarily related to the aforementioned increased business activity across all segments. INTEREST EXPENSE.
Income from operations for the year ended December 31, 2023 increased by $41.0 million to $138.7 million from $97.8 million in the prior year's corresponding period. This increase in operating income is primarily related to the aforementioned increased business activity across all segments. INTEREST EXPENSE.
Impairment of Goodwill, Other Intangible Assets, and Long-Lived Assets The Company tests goodwill and other intangible assets for impairment on an annual basis in the fourth quarter and when events or changes in circumstances indicate that the carrying amount may not be recoverable.
Impairment of Goodwill, Other Intangible Assets, and Long-Lived Assets The Company tests goodwill and other intangible assets for impairment annually on October 1 st and when events or changes in circumstances indicate that the carrying amount may not be recoverable.
Consolidated Results of Operations Years Ended December 31, 2022 % 2021 % 2020 % ( in millions, except percentages and per share amounts ) Sales $ 1,480.8 100.0 $ 1,113.9 100.0 $ 1,005.3 100.0 Cost of sales 1,058.8 71.5 785.4 70.5 728.1 72.4 Gross profit 422.0 28.5 328.5 29.5 277.2 27.6 Selling, general & administrative expense 324.3 21.9 288.6 25.9 245.0 24.4 Impairment and other charges — — — — 59.9 6.0 Operating income (loss) 97.7 6.6 39.9 3.6 (27.7) (2.8) Other( income) expense, net 2.7 0.2 (0.4) — 0.1 — Interest expense 29.1 2.0 21.1 1.9 20.6 2.0 Income (loss) before income taxes 65.9 4.5 19.2 1.7 (48.4) (4.8) Provision for income taxes (benefit) 17.8 1.2 3.4 0.3 (18.7) (1.9) Net income (loss) 48.1 3.2 15.8 1.4 (29.7) (3.0) Net loss attributable to noncontrolling interest (0.1) — (0.7) (0.1) (0.3) — Net income (loss) attributable to DXP Enterprises, Inc. $ 48.2 3.3 $ 16.5 1.5 $ (29.4) (2.9) Per share Basic earnings per share $ 2.58 $ 0.87 $ (1.65) Diluted earnings per share $ 2.47 $ 0.83 $ (1.65) Year Ended December 31, 2022 compared to Year Ended December 31, 2021 SALES.
Consolidated Results of Operations Twelve Months Ended December 31, 2023 % 2022 % 2021 % ( in millions, except percentages and per share amounts ) Sales $ 1,678.6 100.0 $ 1,480.8 100.0 $ 1,113.9 100.0 Cost of sales 1,173.3 69.9 1,058.8 71.5 785.4 70.5 Gross profit 505.3 30.1 422.0 28.5 328.5 29.5 Selling, general and administrative expenses 366.6 21.8 324.3 21.9 288.6 25.9 Income from operations 138.7 8.3 97.7 6.6 39.9 3.6 Other (income) expense, net (1.4) (0.1) 2.7 0.2 (0.4) — Interest expense 53.1 3.2 29.1 2.0 21.1 1.9 Income before income taxes 87.0 5.2 65.9 4.5 19.2 1.7 Provision for income tax expense 18.1 1.1 17.8 1.2 3.4 0.3 Net income 68.9 4.1 48.1 3.2 15.8 1.4 Net loss attributable to noncontrolling interest — — (0.1) — (0.7) (0.1) Net income attributable to DXP Enterprises, Inc. $ 68.9 4.1 $ 48.2 3.3 $ 16.5 1.5 Earning per share: Basic $ 4.07 $ 2.58 $ 0.87 Diluted $ 3.89 $ 2.47 $ 0.83 Year Ended December 31, 2023 compared to Year Ended December 31, 2022 SALES.
If the Company concludes, based on the qualitative assessment, that a reporting unit's carrying value would more likely than not exceed its fair value, the Company would perform a quantitative test for that reporting unit.
If the Company concludes, based on the qualitative assessment, that a reporting unit's carrying value would more likely than not exceed its fair value, the Company would perform a quantitative test for that reporting unit. Goodwill is deemed to be impaired if the carrying amount of a reporting unit’s net assets including goodwill exceeds its estimated fair value.
For the year ended December 31, 2022, the Company repurchased approximately $47.9 million worth of outstanding shares compared to $33.5 million worth of outstanding shares for the year ended December 31, 2021. The net inflow of cash from financing activities in 2022 benefited from borrowing an additional $105.0 million on our Term Loan B.
For the year ended December 31, 2023, the Company repurchased approximately $56.2 million worth of outstanding shares compared to $47.9 million worth of outstanding shares for the year ended December 31, 2022. The net inflow of cash from financing activities in 2023 benefited from refinancing our existing Senior Secured Term Loan B.
Debt issuance costs associated with the amendment of our Term Loan B and ABL Revolver was $8.4 million for the year ended December 31, 2021.
Debt issuance costs associated with the amendment of our new Term Loan B was $12.1 million for the year ended December 31, 2023.
Sales for the year ended December 31, 2022 increased $366.9 million, or 32.9%, to approximately $1.5 billion from $1.1 billion for the year ended December 31, 2021. This sales increase is the result of an increase in sales in our SC, IPS and SCS segments of $192.9 million, $91.5 million and $82.5 million, respectively.
Sales for the year ended December 31, 2023 increased $197.8 million, or 13.4%, to approximately $1.7 billion from $1.5 billion for the year ended December 31, 2022. This sales increase is the result of an increase in sales in our SC, IPS and SCS segments of $135.7 million, $42.0 million and $20.0 million, respectively.
DISCUSSION OF CRITICAL ACCOUNTING ESTIMATES The Consolidated Financial Statements of the Company are prepared in accordance with US GAAP, which require management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities.
GAAP, which require management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities.
Investing Activities For the year ended December 31, 2022, net cash used in investing activities was $53.4 million compared to $69.0 million in the corresponding period in 2021. This decrease of $15.6 million was primarily driven by a reduction in the total purchase price paid for acquisitions during 2022 of $48.5 million compared to $64.7 million for acquisitions in 2021.
This decrease of $30.8 million was primarily driven by a reduction in the total purchase price paid for acquisitions during 2023 of $10.4 million compared to $48.5 million for acquisitions in 2022. 34 Table of Contents Financing Activities For the year ended December 31, 2023, net cash generated in financing activities was $43.6 million, compared to net cash generated in financing activities of $44.3 million for the corresponding period in 2022.
Gross profit as a percentage of sales for the year ended December 31, 2022 decreased by approximately 99 basis points from the prior year's corresponding period. Excluding the impact of the businesses acquired, gross profit as a percentage of sales decreased by approximately 137 basis points.
Gross profit as a percentage of sales for the twelve months ended December 31, 2023 increased by approximately 160 basis points from the prior year's corresponding period.
As such, the majority of the 2022 sales increase is the result of increases in price with volume as well as the contribution from acquisitions and the related sales of rotating equipment and air compressors. 27 Table of Contents During 2021, the growth rate of the general economy improved from 2020 as well as the rig count.
As such, some of the 2023 sales increase is the result of increases in price with increases in volume as well as the contribution from acquisitions and the related sales of rotating equipment and air compressors.
During the twelve months ended December 31, 2022, there were two installment payments totaling $13.6 million. There are no further installment payments outstanding as of December 31, 2022.
During the twelve months ended December 31, 2022, there were two installment payments totaling $13.6 million. There were no further installment payments outstanding as of December 31, 2022 and December 31, 2023 We believe the Company has adequate funding to support its working capital needs within the business.
Financing Activities For the year ended December 31, 2022, net cash generated in financing activities was $44.3 million, compared to net cash used in financing activities of $38.5 million for the corresponding period in 2021.
Investing Activities For the year ended December 31, 2023, net cash used in investing activities was $22.6 million compared to $53.4 million used in the corresponding period in 2022.
The net realizable value was derived from quotes for similar items and recent transactions. 39 Table of Contents Revenue Recognition In our Innovative Pumping Solutions segment, a substantial portion of our sales to customers are pursuant to contracts to assemble, fabricate and or deliver tangible assets to customer specifications that can range from three to eighteen months or more.
If actual results are not consistent with the Company’s current estimates and assumptions, impairment of goodwill could be required. Revenue Recognition In our Innovative Pumping Solutions segment, a substantial portion of our sales to customers are pursuant to contracts to assemble, fabricate and or deliver tangible assets to customer specifications that can range from three to eighteen months or more.
At December 31, 2022, our total long-term debt, including the current portion, less principal repayments, was $428.1 million, or 54.0% of total capitalization (total long-term debt including current portion plus shareholders’ equity) of $793.5 million. Approximately $428.1 million of this outstanding debt bears interest at various floating rates. See Item 7A.
At December 31, 2023, our total outstanding debt was $548.6 million, or 59.0% of total capitalization (total debt plus shareholders’ equity) of $929.5 million. All $548.6 million of this outstanding debt bears interest at various floating rates. See Item 7A.
Interest expense for the year ended December 31, 2022 increased $8.0 million compared to the prior year's corresponding period, primarily due to the Company borrowing an additional $105.0 million on its Term Loan B during the fourth quarter of 2022 as well as incurring higher than average interest rates during the year due to changes in the macro-economic environment and the associated increasing interest rate policy by the U.S.
Interest expense for the year ended December 31, 2023 increased $24.0 million compared to the prior year's corresponding period, primarily due to incurring higher than average interest rates during the year due and an increased borrowing base on the Term Loan B.
Federal Reserve Bank. Both of the Company's facilities are subject to a variable interest rate for the twelve months ended December 31, 2022. INCOME TAXES. Our effective tax rate from continuing operations was 27.0 percent for the twelve months ended December 31, 2022, compared to 17.9 percent for the twelve months ended December 31, 2021.
Our effective tax rate from continuing operations was a tax expense of 20.8 percent for the twelve months ended December 31, 2023, compared to a tax expense of 27.0 percent for the twelve months ended December 31, 2022.
Such indemnification obligations may not be subject to maximum loss clauses. Historically, payments made related to these indemnities have been immaterial.
Such indemnification obligations may not be subject to maximum loss clauses. Historically, payments made related to these indemnities have been immaterial. DISCUSSION OF CRITICAL ACCOUNTING ESTIMATES The Consolidated Financial Statements of the Company are prepared in accordance with U.S.
The WACC considers market an industry data, as well as Company-specific risk factors for each reporting unit in determining the appropriate discount rate to be used. The discount rate utilized for each reporting unit is indicative of the return an investor would expect to receive for investing in a similar business.
The discount rate utilized for each reporting unit is indicative of the return an investor would expect to receive for investing in a similar business. Management uses industry considerations and Company-specific historical and projected results to develop cash flow projections for each reporting unit.
Below are readings for the fourth quarter versus the full year average: Index Reading * Period MCU PMI IP MBI October 79.9 50.2 104.7 49 November 79.7 49 104.5 47.1 December 78.8 48.4 103.4 46.8 Fiscal 2022 Q4 average 79.5 49.2 104.2 47.6 Fiscal 2022 average 79.7 53.5 103.9 53.9 Fiscal 2021 average 75.4 60.6 100.5 59.7 Fiscal 2020 average 71.9 52.5 101.8 47.6 * The information contained in this table has been obtained from third party publicly available sources.
Below are readings for the fourth quarter versus the full year average: Index Reading Period MCU PMI IP MBI Active Drilling Rigs (1) October 78.6 46.7 102.4 45.4 1,777 November 78.8 46.6 102.7 43.4 1,794 December 78.7 47.1 102.7 44.3 1,739 Fiscal 2023 Q4 average 78.7 46.8 102.6 44.4 1,770 Fiscal 2023 average 79.3 47.1 102.8 46.5 1,814 Fiscal 2022 average 79.7 53.5 103.9 53.9 1,747 Fiscal 2021 average 75.4 60.6 100.5 59.7 1,361 (1).
Management uses industry considerations and Company-specific historical and projected results to develop cash flow projections for each reporting unit. Additionally, as part of the market multiples approach, the Company utilizes market data from publicly traded entities whose businesses operate in industries comparable to the Company’s reporting units, adjusted for certain factors that increase comparability.
Additionally, as part of the market multiples approach, the Company utilizes market data from publicly traded entities whose businesses operate in industries comparable to the Company’s reporting units, adjusted for certain factors that increase comparability. 37 Table of Contents The Company cannot predict the occurrence of events or circumstances that could adversely affect the fair value of goodwill.
Key assumptions used in the discounted cash flow valuation model include, among others, discount rates, growth rates, cash flow projections and terminal value rates. Discount rates and cash flow projections are the most sensitive and susceptible to change as they require significant management judgment. Discount rates are determined using a weighted average cost of capital (“WACC”).
Discount rates and cash flow projections are the most sensitive and susceptible to change as they require significant management judgment. Discount rates are determined using a weighted average cost of capital (“WACC”). The WACC considers market an industry data, as well as Company-specific risk factors for each reporting unit in determining the appropriate discount rate to be used.
Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material impact on our results of operations, financial position and cash flows. 36 Table of Contents A summary of significant accounting policies is included in Note 2 - Summary of Significant Accounting and Business Policies to the Consolidated Financial Statements in Item 8.
Making estimates and judgments about future events is inherently unpredictable and is subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material impact on our results of operations, financial position and cash flows.
The fluctuations in sales are further explained in our business segment discussions below. 28 Table of Contents Years Ended December 31 2022 2021 Change Change% Sales by Business Segment (in thousands, except change %) Service Centers $ 1,009,356 $ 816,496 $ 192,860 23.6 % Innovative Pumping Solutions 231,102 139,591 91,511 65.6 % Supply Chain Services 240,374 157,834 82,540 52.3 % Total Sales $ 1,480,832 $ 1,113,921 $ 366,911 32.9 % Service Centers Segment.
The fluctuations in sales are further explained in our business segment discussions below. 31 Table of Contents Years Ended December 31 2023 2022 Change Change % Sales by Business Segment (in thousands, except percentages) Service Centers $ 1,145,082 $ 1,009,356 $ 135,726 13.4 % Innovative Pumping Solutions 273,150 231,102 42,048 18.2 % Supply Chain Services 260,368 240,374 19,994 8.3 % Total Sales $ 1,678,600 $ 1,480,832 $ 197,768 13.4 % Service Centers Segment.
The decrease in the gross profit percentage excluding the businesses acquired is primarily the result of an approximate 133 basis point decrease in the gross profit percentage in our IPS segment, a 54 basis point decrease in the gross profit percentage in our SC segment and a 366 basis point decrease in the gross profit percentage in our SCS segment.
The increase in the gross profit percentage is primarily the result of an approximate 147 basis points and 349 basis points increase in the gross profit percentage in our SC and IPS segments, respectively, partially offset by an approximate 21 basis points decrease in our SCS segment. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A").
These types of analyses contain uncertainties as they require management to make assumptions and to apply judgments regarding industry economic factors and the profitability of future business strategies. The Company’s policy is to conduct impairment testing based on current business strategies, taking into consideration current industry and economic conditions, as well as the Company’s future expectations.
The Company determines fair value using widely accepted valuation techniques, including discounted cash flows and market multiples analyses. These types of analyses contain uncertainties as they require management to make assumptions and to apply judgments regarding industry economic factors and the profitability of future business strategies.
During 2022, the growth rate of the general economy improved, as the macro economy and business cycle began to normalize relative to the pandemic related years of 2020 and 2021. Sales for the year ended December 31, 2022 increased $366.9 million, or 32.9%, to approximately $1.5 billion from $1.1 billion for the prior corresponding period.
From Baker Hughes’ Worldwide Rig Counts - Current Data During 2023, the growth rate of the general economy improved, as the macro economy and business cycle began to normalize relative to the pandemic related years of 2020 and 2021.
We also require cash to pay our lease obligations, fund project work-in-process and to service our debt. 32 Table of Contents The following table summarizes our net cash flows used in and provided by operating activities, net cash used in investing activities and net cash (used in) provided by financing activities for the periods presented ( in thousands ): Years Ended December 31, 2022 2021 Change Change(%) Net cash provided by (used in): Operating activities $ 5,894 $ 37,089 $ (31,195) (84) % Investing activities (53,422) (69,023) 15,601 (23) % Financing activities 44,312 (38,493) 82,805 (215) % Effect of foreign currency 253 88 165 188 % Net change in cash $ (2,963) $ (70,339) $ 67,376 (96) % Operating Activities The Company generated $5.9 million of cash in operating activities during the year ended December 31, 2022 compared to generating $37.1 million of cash during the prior year's corresponding period.
The following table summarizes our net cash flows provided by (used in) operating activities, investing activities, financing activities for the periods presented ( in thousands, except percentages ): Twelve Months Ended December 31, 2023 2022 Change Change % Net cash provided by (used in): Operating activities $ 106,222 $ 5,894 $ 100,328 1,702 % Investing activities (22,647) (53,422) 30,775 (58) % Financing activities 43,579 44,312 (733) (2) % Effect of foreign currency (60) 253 (313) (124) % Net change in cash and restricted cash $ 127,094 $ (2,963) $ 130,057 (4,389) % Operating Activities The Company generated $106.2 million of cash in operating activities during the year ended December 31, 2023 compared to generating $5.9 million of cash during the prior year's corresponding period.
The ABL Loans and the Term Loan are secured by substantially all of the assets of the Company. 35 Table of Contents Borrowings (in thousands): December 31, 2022 December 31, 2021 Increase (Decrease) Current portion of long-term debt $ 4,369 $ 3,300 $ 1,069 Long-term debt 423,764 323,400 100,364 Total debt $ 428,133 $ 326,700 $ 101,433 We believe our cash generated from operations will meet our normal working capital needs during the next twelve months.
The following table sets forth the reconciliation of net cash provided by operating activities to Free Cash Flow (in thousands) : Twelve Months Ended December 31, 2023 2022 2021 Net cash provided by operating activities $ 106,222 $ 5,894 $ 37,089 Less: Purchase of property and equipment, net 12,263 4,916 4,330 Free Cash Flow $ 93,959 $ 978 $ 32,759 35 Table of Contents ABL Revolver and Senior Secured Term Loan Borrowings (in thousands): December 31, 2023 2022 Current portion of long-term debt $ 5,500 $ 4,369 Long-term debt 543,125 423,764 Total debt $ 548,625 $ 428,133 We believe our cash generated from operations will meet our normal working capital needs during the next twelve months.
Our primary source of capital is cash flow from operations, supplemented as necessary by Company shares, bank borrowings or other sources of debt. As a distributor of MRO products and services, we require significant amounts of working capital to fund inventories and accounts receivables.
We have a $135.0 million asset backed revolving line of credit (the "ABL Revolver"), partially offset by letters of credit of $2.9 million. Our primary source of capital is cash flow from operations, supplemented as necessary by Company shares, bank borrowings or other sources of debt.
(2) Assumes interest rates in effect at December 31, 2022. Assumes debt is paid on maturity date and not replaced. Indemnification In the ordinary course of business, the Company enters into contractual arrangements under which the Company may agree to indemnify customers from any losses incurred relating to the services we perform.
Borrowing Capacity (in thousands): The following table summarizes the amount of borrowing capacity under our ABL Revolver as follows: December 31, 2023 2022 Total borrowing capacity $ 135,000 $ 135,000 Less: Amount drawn — — Less: Outstanding letters of credit 2,945 2,620 Total amount available $ 132,055 $ 132,380 Indemnification In the ordinary course of business, the Company enters into contractual arrangements under which the Company may agree to indemnify customers from any losses incurred relating to the services we perform.
Sales for the Service Centers segment increased by $192.9 million, or 23.6% for the year ended December 31, 2022, compared to the year ended December 31, 2021. Excluding $35.0 million of 2022 Service Centers segment sales from businesses acquired, Service Centers segment sales increased $157.9 million, or 19.3% from the prior year's corresponding period.
Sales for the Service Centers segment increased by $135.7 million, or 13.4% for the year ended December 31, 2023, compared to the year ended December 31, 2022. Sales from acquisitions for the SC segment was $19.3 million during the twelve months ended December 31, 2023.
Financial Statements and Supplementary Data , which is incorporated herein by reference.
A summary of significant accounting policies is included in Note 2 - Summary of Significant Accounting and Business Policies to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data , which is incorporated herein by reference.
As a result, we may experience changes in demand within particular markets, segments and product categories as changes occur in our customers' respective markets. 26 Table of Contents CURRENT MARKET CONDITIONS AND OUTLOOK Economic Indices The Company monitors several economic indices that have been key indicators for industrial and oil & gas economic activity in the United States.
Free Cash Flow We define and calculate free cash flow as net cash provided by operating activities less net purchases of property and equipment. CURRENT MARKET CONDITIONS AND OUTLOOK Economic Indices The Company monitors several economic indices that have been key indicators for industrial and oil & gas economic activity in the U.S.
Sales from businesses recently acquired accounted for $41.5 million of the sales for the twelve months ended December 31, 2022. Excluding the 2022 sales of from businesses acquired, sales for the year increased by $325.4 million, or 29.2% from the prior year's corresponding period.
Sales for the year ended December 31, 2023 increased $197.8 million, or 13.4%, to approximately $1.7 billion from $1.5 billion for the prior corresponding period.
The increase in SG&A excluding businesses acquired is primarily the result of increased payroll, incentive compensation and related taxes and 401(k) expenses as a result of increased business activity associated with recovery from the negative economic impacts of the COVID-19 pandemic. OPERATING INCOME.
SG&A for the year ended December 31, 2023 increased by approximately $42.3 million, or 13.0%, to $366.6 million from $324.3 million for the prior year's corresponding period. The increase in SG&A is primarily the result of increased payroll, incentive compensation and related taxes and 401(k) expenses as a result of increased business activity. INCOME FROM OPERATIONS.
Additional cash is required for capital items for information technology, warehouse equipment, leasehold improvements, pump manufacturing equipment and safety services equipment.
As a distributor of MRO products and services, we require significant amounts of working capital to fund inventories and accounts receivables. Additional cash is required for capital items for information technology, warehouse equipment, leasehold improvements, pump manufacturing equipment and safety services equipment. We also require cash to pay our lease obligations, fund project work-in-process and to service our debt.
This increase was primarily the result of an increase in the capital spending by oil and gas producers and related businesses. Supply Chain Services Segment. Sales for the SCS segment increased by $82.5 million, or 52.3%, for the year ended December 31, 2022, compared to the year ended December 31, 2021.
Sales for the SCS segment increased by $20.0 million, or 8.3%, for the year ended December 31, 2023, compared to the year ended December 31, 2022. The improved sales are primarily related to the addition of a new customer in the diversified chemicals market. GROSS PROFIT.
Sales for the IPS segment increased by $91.5 million, or 65.6% for the year ended December 31, 2022, compared to the year ended December 31, 2021. Excluding $6.6 million of 2022 IPS segment sales from businesses acquired, IPS segment sales increased $85.0 million, or 60.9% from the prior year's corresponding period.
Sales for the IPS segment increased by $42.0 million, or 18.2% for the year ended December 31, 2023, compared to the year ended December 31, 2022. Sales from acquisitions for the IPS segment was $13.8 million during the twelve months ended December 31, 2023. Supply Chain Services Segment.
The non-GAAP financial measures presented may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures in the same way. These measures are not substitutes for their comparable U.S. GAAP financial measures.
GAAP business metrics may be calculated in a different manner than similarly titled metrics used by other companies. See “Non-U.S. GAAP Financial Measures and Reconciliations” for additional information on non-U.S. GAAP financial measures and a reconciliation to the most comparable U.S.
The $31.2 million decrease in the amount of cash generated between the two periods was primarily driven by the increase in accounts receivable, inventory, deferred income taxes and project work activity as a result of increased business activity. Cash is generally used to fund project costs ahead of actual billings and collection.
The $100.3 million increase in the amount of cash generated between the two periods was primarily driven by the collections of receivables associated with trade accounts receivable partially offset by decreased inventory purchases and accrued expenses as compared to the prior period.
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The Company also monitors various oil & gas indicators including active drilling rigs, gross U.S. domestic production and the West Texas Intermediate ("WTI") price of oil.
Added
As a result, we may experience changes in demand within particular markets, segments and product categories as changes occur in our customers' respective markets. Key Business Metrics We regularly monitor several financial and operating metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. Our key non-U.S.
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Below are readings for the last three years: Operating Environment Overview* December 31, 2022 2021 2020 Active Drilling Rigs** U.S. 721 475 436 Canada 176 131 90 International 851 755 825 Worldwide 1,747 1,361 1,351 Gross Domestic Product (in billions) $ 25,461.3 $ 22,993.5 $ 20,932.8 West Texas Intermediate ** (per barrel) $ 94.90 $ 68.14 $ 39.16 Purchasing Managers Index 48.4 58.8 60.5 * The information contained in this table has been obtained from third party publicly available sources. ** Averages for the years indicated.
Added
GAAP measures. 28 Table of Contents Twelve Months Ended December 31, 2023 2022 2021 Sales by Business Segment ( in thousands, except percentages and days) Service Centers $ 1,145,082 $ 1,009,356 $ 816,496 Innovative Pumping Solutions 273,150 231,102 139,591 Supply Chain Services 260,368 240,374 157,834 Total DXP Sales $ 1,678,600 $ 1,480,832 $ 1,113,921 Acquisition Sales $ 33,078 $ 41,527 $ 147,472 Organic Sales 1,645,522 1,439,305 966,449 Business Days 252 253 251 Sales per Business Day $ 6,661 $ 5,853 $ 4,438 Organic Sales per Business Day 6,530 5,689 3,850 Gross Profit $ 505,291 $ 422,038 $ 328,506 Gross Profit Margin 30.1 % 28.5 % 29.5 % EBITDA $ 170,182 $ 123,535 $ 67,415 EBITDA Margin 10.1 % 8.3 % 6.1 % Adjusted EBITDA $ 174,305 $ 126,805 $ 70,231 Adjusted EBITDA Margin 10.4 % 8.6 % 6.3 % Free Cash Flow $ 93,959 $ 980 $ 32,759 Organic Sales and Acquisition Sales We define and calculate organic sales to include locations and acquisitions under our ownership for at least twelve months.
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Sales for the year ended December 31, 2021 increased $108.7 million, or 10.8%, to approximately $1.1 billion from $1.0 billion for the prior corresponding period. The majority of the 2021 sales increase was primarily due to acquisitions and the related sales of rotating equipment air compressors. Our sales growth strategy in recent years has focused on internal growth and acquisitions.
Added
"Acquisition Sales" are sales from acquisitions that have been under our ownership for less than twelve months and are excluded in our calculation of Organic Sales. Business Days "Business Days" are days of the week, excluding Saturdays, Sundays, and holidays, that our locations are open during the year.
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The improvement in sales is primarily related to the addition of a new customer in the diversified chemicals market, as well as sales increases in the medical technology, food and beverage and oil and gas markets. GROSS PROFIT.
Added
Depending on the location and the season, our branches may be open on Saturdays and Sundays; however, for consistency, those days have been excluded from the calculation of Business Days. Sales per Business Day We define and calculate Sales per Business Day as sales divided by the number of Business Days in the relevant reporting period.
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Service Centers Segment. The gross profit percentage for the Service Centers decreased approximately 21 basis points and approximately 54 basis points, excluding the impact for the businesses acquired, from the prior year's corresponding period. This was primarily as a result of product mix.
Added
Organic Sales per Business Days We define and calculate Organic Sales per Business Day as Organic Sales divided by the number of Business Days in the relevant reporting period. EBITDA and Adjusted EBITDA We define and calculate EBITDA as Net income attributable to DXP Enterprises, Inc., plus interest, taxes, depreciation, amortization, and non-controlling interest.
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Gross profit for the SC segment, excluding businesses acquired, increased $42.9 million, or 17.2 percent, during the twelve months ended December 31, 2022 compared to the prior year’s corresponding period. This was primarily the result of increased sales of rotating equipment and bearings and power transmission products to customers engaged in non-oil and gas markets. Innovative Pumping Solutions Segment.
Added
We define and calculate Adjusted EBITDA as Net income attributable to DXP Enterprises, Inc., plus interest, taxes, depreciation, amortization minus stock-based compensation expense, non-controlling interest before taxes and all other non-cash charges, adjustments, and non-recurring items.
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The 2022 gross profit percentage for the IPS segment decreased approximately 66 basis points from the prior year's corresponding period. Adjusting for the businesses acquired, gross profit as a percentage of sales decreased approximately 133 basis points from the prior year's corresponding period.
Added
We identify the impact of all other non-cash charges, adjustments and non-recurring items because we believe these items do not directly reflect our underlying operations. 29 Table of Contents EBITDA Margin and Adjusted EBITDA Margin We define and calculate EBITDA Margin as EBITDA divided by sales. We define and calculate Adjusted EBITDA Margin as Adjusted EBITDA divided by sales.
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The decrease in gross profit percentage as a percentage of sales is primarily due to a mix shift (lower margin oil and gas work versus domestic water and wastewater projects).
Added
As our operations have generally stabilized from the COVID-19 pandemic, we have seen growth from our supportive served end-markets and our focus on organic and inorganic sales growth. Our sales volume is expected to deliver sustainable and healthy growth, while our diversification efforts have unlocked gains in margins, cash flow and overall organizational efficiency.
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Gross profit for the IPS segment, excluding businesses acquired, increased $22.5 million, primarily as a result of an increase in the capital spending by oil and gas producers and related businesses. Supply Chain Services Segment.
Added
With our strong backlog and improved market environment, we expect to continue to see growth in 2024. Assuming a positive general macroeconomic environment and continued supportive environments in our end markets, we expect fiscal 2024 to be comparable to 2023 levels with the exception of increased acquisition activity.
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Gross profit dollars for the twelve months ended December 31, 2022 increased $10.9 million or, 28.9 percent, compared to the prior year's corresponding period due to the addition of a new customer during the current year.
Added
We expect our interest expense in 2024 will be relatively higher than the amounts incurred in 2023 due to our refinancing in the fourth quarter of 2023 including the raising of an incremental $125 million. 30 Table of Contents We expect to generate sufficient cash from operations and have sufficient capacity under our ABL credit facility to fund any working capital, capital expenditures, share repurchases, and debt payments in 2024.
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As a percentage of sales, or gross margins, for the twelve months ended December 31, 2022 decreased approximately 366 basis points, compared to the prior year's corresponding period, due to the addition of the same customer and the profitability of this contract. 29 Table of Contents SELLING, GENERAL AND ADMINISTRATIVE ("SG&A").
Added
The amount of cash generated or consumed by working capital is dependent on our level of revenues, customer cash advances, backlog, customer-driven delays and other factors. We will seek to improve our working capital utilization, with a particular focus on improving the management of accounts receivable, inventory and cost in excess of billings.
Removed
SG&A for the year ended December 31, 2022 increased by approximately $35.6 million, or 12.3%, to $324.3 million from $288.6 million for the prior year's corresponding period. SG&A expense from businesses acquired accounted for $8.9 million.
Added
In 2024, our cash flows for investing activities will be focused on strategic initiatives, information technology software and infrastructure, general upgrades and cost reduction opportunities and we currently estimate capital expenditures to be between $10 million and $20 million, before consideration of any acquisition activity. Our sales growth strategy in recent years has focused on internal growth and acquisitions.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. Properties We own seven of our facilities while the remainder of our facilities are leased. At December 31, 2022, we had approximately 180 facilities which contained 156 services centers, 4 distribution centers, 16 fabrication facilities and 4 wastewater locations. Additionally, we operated out of 95 of our customers' facilities.
Biggest changeITEM 2. Properties At December 31, 2023, we had 183 facilities which contained 157 services centers, 4 distribution centers, 16 fabrication facilities and 6 wastewater locations. Additionally, we operated out of 81 of our customers' facilities. We own seven of our facilities while the remainder of our facilities are leased.
We believe that if the leases for any of our facilities were not renewed, other suitable facilities could be leased with no material adverse effect on our business, financial condition or results of operations. See Note 4 - Leases for additional discussion on our leases. 22 Table of Contents
We believe that if the leases for any of our facilities were not renewed, other suitable facilities could be leased with no material adverse effect on our business, financial condition or results of operations. See Note 4 - Leases for additional discussion on our leases. 25 Table of Contents
State/City/Province Locations State/City/Province Locations Alaska 1 New York 3 Alabama 6 Ohio 5 Arkansas 1 Oklahoma 3 Arizona 2 Oregon 1 California 8 Pennsylvania 3 Colorado 6 South Dakota 1 Florida 2 Tennessee 1 Georgia 4 Texas 47 Iowa 4 Utah 1 Illinois 2 Washington 4 Indiana 2 Wisconsin 2 Kansas 2 West Virginia 1 Kentucky 1 Wyoming 2 Louisiana 14 Alberta 10 Massachusetts 1 British Columbia 1 Maryland 1 Manitoba 2 Michigan 1 New Brunswick 1 Minnesota 1 Newfoundland 1 Montana 2 Nova Scotia 2 Nebraska 9 Ontario 5 New Mexico 2 Quebec 1 North Carolina 3 Saskatchewan 3 North Dakota 3 Dubai 1 New Jersey 1 Total Locations 180 At December 31, 2022, our owned facilities ranged from 5,000 square feet to 45,000 square feet in size.
State/City/Province Locations State/City/Province Locations Alaska 1 North Dakota 3 Alabama 6 Ohio 5 Arkansas 1 Oklahoma 3 Arizona 2 Oregon 1 California 10 Pennsylvania 4 Colorado 5 South Dakota 1 Florida 3 Tennessee 1 Georgia 4 Texas 46 Iowa 4 Utah 1 Illinois 2 Washington 4 Indiana 2 Wisconsin 2 Kansas 2 West Virginia 1 Kentucky 1 Wyoming 2 Louisiana 14 Alberta 10 Massachusetts 1 British Columbia 1 Maryland 1 Manitoba 2 Michigan 1 New Brunswick 1 Minnesota 1 Newfoundland 1 Missouri 1 Nova Scotia 2 Montana 2 Ontario 5 Nebraska 9 Quebec 1 New Mexico 2 Saskatchewan 3 New Jersey 1 Dubai 1 New York 3 Total Locations 183 North Carolina 3 At December 31, 2023, our owned facilities ranged from 5,000 square feet to 45,000 square feet in size.
At December 31, 2022, the Service Centers segment operated out of 156 service center facilities. Of these facilities, 131 were located in the U.S. in 37 states, 24 were located in nine Canadian provinces and one was located in Dubai. The four distribution centers were located in the U.S., specifically in Texas, Montana and Nebraska.
At December 31, 2023, the Service Centers segment operated out of 157 service center facilities. Of these facilities, 132 were located in the U.S. in 37 states, 24 were located in 9 Canadian provinces and one was located in Dubai. The four distribution centers were located in the U.S., specifically in Texas, Montana and Nebraska.
At December 31, 2022, the Innovative Pumping Solutions segment operated out of 16 fabrication facilities located in two states in the U.S., two provinces in Canada and 4 wastewater locations in the U.S.. At December 31, 2022, the Supply Chain Services segment operated supply chain installations in 95 of our customers’ facilities in 31 U.S. states and one Canadian province.
At December 31, 2023, the Innovative Pumping Solutions segment operated out of 16 fabrication facilities located in seven states in the U.S., two provinces in Canada and 6 wastewater locations in the U.S.. At December 31, 2023, the Supply Chain Services segment operated supply chain installations in 81 of our customers’ facilities in 29 U.S. states and two Canadian provinces.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIn addition, we believe the shares were issued to “accredited investors” as defined by Rule 501 of the Securities Act. 25 Table of Contents Repurchases of Common Stock The following table presents information with respect to the Company’s repurchases of its common stock during the quarter ended December 31, 2022 (in thousands except average price paid per share): Total Number of Shares Purchased (1) Average Price Paid per Share Total number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) October 1 – October 31 $ — $ — $ — $ 46,626 November 1 – November 30 880 28.71 880 21,353 December 1 – December 31 187 27.25 187 84,860 Total $ 1,067 $ 28.46 $ 1,067 $ 84,860 (1) Represents shares repurchased by the Company during the period as part of our publicly announced share repurchase program.
Biggest changeRepurchases of Common Stock The following table presents information with respect to the Company’s repurchases of its common stock during the quarter ended December 31, 2023 ( in thousands except average price paid per share ): Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ( in thousands ) October 1 - October 31 $ — $ — $ — $ 26,412 November 1 – November 30 — — — 26,412 December 1 – December 31 — — — 26,412 Total $ — $ — $ — $ — $ 26,412
Stock Performance The following performance graph compares the performance of the Company's common stock to the NASDAQ Industrial Index, S & P 400 Index and Dow Jones U.S. Industrial Suppliers Index. The graph assumes that the value of the investment in the Company's common stock and in each index was $100 at December 31, 2017.
Stock Performance The following performance graph compares the performance of the Company's common stock to the NASDAQ Industrial Index, S&P 400 Index and Dow Jones U.S. Industrial Suppliers Index. The graph assumes that the value of the investment in the Company's common stock and in each index was $100 at December 31, 2018.
Recent Sales of Unregistered Securities The Company issued 36,549 unregistered shares of common stock as part of the consideration for the September 1, 2022 acquisition of Sullivan. The unregistered shares were issued to the sellers of Sullivan. The Company issued 208,855 unregistered shares of common stock as part of the consideration for the May 2, 2022 acquisition of Cisco.
The Company issued 36,549 unregistered shares of common stock as part of the consideration for the September 1, 2022 acquisition of Sullivan. The unregistered shares were issued to the sellers of Sullivan. The Company issued 208,855 unregistered shares of common stock as part of the consideration for the May 2, 2022 acquisition of Cisco.
The unregistered shares were issued to the sellers of Cisco. The Company issued 18,263 unregistered shares of common stock as part of the consideration for the March 1, 2022 acquisition of Drydon. The unregistered shares were issued to the sellers of Drydon.
The unregistered shares were issued to the sellers of Cisco. 27 Table of Contents The Company issued 18,263 unregistered shares of common stock as part of the consideration for the March 1, 2022 acquisition of Drydon. The unregistered shares were issued to the sellers of Drydon.
ITEM 5. Market for the Registrant's Common Equity, Related Shareholder Matters and I ssuer Purchases of Equity Securities Our common stock trades on The NASDAQ Global Select Market under the stock ticker symbol "DXPE". On April 17, 2023, we had approximately 366 holders of record for outstanding shares of our common stock.
ITEM 5. Market for the Registrant's Common Equity, Related Shareholder Matters and I ssuer Purchases of Equity Securities Our common stock trades on The NASDAQ Global Select Market under the stock ticker symbol "DXPE". On March 4, 2024, we had approximately 358 holders of record for outstanding shares of our common stock.
The Company issued 351,945 unregistered shares of common stock as part of the consideration for the April 30, 2021 acquisition of CVI. The unregistered shares were issued to the sellers of CVI. We relied on Section 4(a)(2) of the Securities Exchange Act as a basis for exemption from registration.
The Company issued 3,581 unregistered shares of common stock as part of the consideration for the March 1, 2022 acquisition of Burlingame. The unregistered shares were issued to the sole seller of Burlingame. We relied on Section 4(a)(2) of the Securities Exchange Act as a basis for exemption from registration.
All issuances were as a result of private negotiation, and not pursuant to public solicitation.
All issuances were as a result of private negotiation, and not pursuant to public solicitation. In addition, we believe the shares were issued to “accredited investors” as defined by Rule 501 of the Securities Act.
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Investors are cautioned against drawing conclusions from the data contained in the graph below as past results are not necessarily indicative of future performance. 24 Table of Contents Equity Compensation Table The following table provides information regarding shares covered by the Company’s equity compensation plans as of December 31, 2022: Plan category Number of Securities to be issued upon exercise of outstanding options Weighted average exercise price of outstanding options Non-vested restricted shares outstanding Weighted average grant price Number of securities remaining available for future issuance under equity compensation plans Equity compensation plans approved by shareholders N/A N/A 157,767 $ 28.64 454,732 (1) Equity compensation plans not approved by shareholders N/A N/A N/A N/A N/A Total N/A N/A 157,767 $ 28.64 454,732 (1) (1) Represents shares of common stock authorized for issuance under the 2016 Omnibus Incentive Plan.
Added
Investors are cautioned against drawing conclusions from the data contained in the graph below as past results are not necessarily indicative of future performance. Recent Sales of Unregistered Securities The Company did not issue any unregistered shares of common stock during the year ended December 31, 2023.
Removed
The Company issued 3,581 unregistered shares of common stock as part of the consideration for the March 1, 2022 acquisition of Burlingame. The unregistered shares were issued to the sole seller of Burlingame. The Company issued 20,793 unregistered shares of common stock as part of the consideration for the September 20, 2021 acquisition of Premier.
Removed
The unregistered shares were issued to the sellers of Premier. The Company issued 61,177 unregistered shares of common stock as part of the consideration for the July 1, 2021 acquisition of PMI. The unregistered shares were issued to the sellers of PMI.
Removed
No shares were repurchased during the period from employees in satisfaction of minimum statutory tax withholding obligations upon the vesting of restricted stock.
Removed
(2) On May 12, 2021, the Company announced the Share Repurchase Program pursuant to which the Company may repurchase up to $85.0 million worth, or 1.5 million shares of the Company's outstanding common stock over the next 24 months. The Company completed the $85.0 million Share Repurchase Program in December 2022.
Removed
On December 15, 2022, the Company announced a new Share Repurchase Program pursuant to which the Company may repurchase up to $85.0 million worth, or 2.8 million shares of the Company's outstanding common stock over the next 24 months.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeAny breach of network; information systems, our data security could result in a disruption of our services or improper disclosure of personal data or confidential information, which could harm our reputation, require us to expend resources to remedy such a security breach or defend against further attacks or subject us to liability under laws that protect personal data, resulting in increased operating costs or loss of revenue.
Biggest changeAny breach of network, information systems, or our data security could result in a disruption of our services or improper disclosure of personal data or confidential information, which could harm our reputation, require us to expend resources to remedy such a security breach or defend against further attacks or subject us to liability under laws that protect personal data, resulting in increased operating costs or loss of revenue. 18 Table of Contents Our backlog is subject to unexpected adjustments and potential cancellations Our backlog generally consists of projects for which we have an executed contract or commitment with a client and reflects our expected revenue from the contract or commitment, which is often subject to revision over time.
Additionally, our IPS segment provides project solutions and capital equipment to the water and wastewater treatment markets including potable water, bio-solid and residual management and wastewater treatment. Our IPS segment provides a single source for engineering, systems design and fabrication for unique customer specifications.
Additionally, our IPS segment provides project solutions and capital equipment to the water and wastewater treatment markets including potable water, bio-solid and residual management and wastewater treatment. Our IPS segment provides a single source for design, engineering, project management and systems design and fabrication for unique customer specifications.
Hamlin was appointed Senior Vice President of DXP Service Centers in June of 2010. Mr. Hamlin joined the Company in 1995. From February 2006 until June 2010 he served as Regional Vice President of the Gulf Coast Region.
Mr. Hamlin was appointed Senior Vice President of DXP Service Centers in June of 2010. Mr. Hamlin joined the Company in 1995. From February 2006 until June 2010 he served as Regional Vice President of the Gulf Coast Region.
Compliance with laws and regulations increases our cost of doing business. We are subject to a variety of laws and regulations, including without limitation import and export requirements, the Foreign Corrupt Practices Act (the “FCPA”), tax laws (including U.S. taxes on our foreign subsidiaries), data privacy requirements, labor laws and anti-competition regulations.
Compliance with laws and regulations increases our cost of doing business. We are subject to a variety of U.S. and foreign laws and regulations, including without limitation import and export requirements, the Foreign Corrupt Practices Act (the “FCPA”), U.S. and foreign tax laws (including U.S. taxes on our foreign subsidiaries), data privacy requirements, labor laws and anti-competition regulations.
All officers of DXP hold office until the regular meeting of the board of directors following the 2022 Annual Meeting of Shareholders or until their respective successors are duly elected and qualified or their earlier resignation or removal. Available Information Our internet address is www.dxpe.com and the investor relations section of our website is located at ir.dxpe.com.
All officers of DXP hold office until the regular meeting of the board of directors following the 2024 Annual Meeting of Shareholders or until their respective successors are duly elected and qualified or their earlier resignation or removal. Available Information Our internet address is www.dxpe.com and the investor relations section of our website is located at ir.dxpe.com.
A variety of products we distribute are used in potentially hazardous applications that can result in personal injury and product liability claims.
A variety of products we distribute are used in potentially hazardous applications that can result in personal injury, product liability and environmental claims.
We generally compete on expertise, responsiveness and price in all of our segments. 9 Table of Contents Insurance We maintain liability and other insurance that we believe to be customary and generally consistent with industry practice. We retain a portion of the risk for medical claims, general liability, worker’s compensation and property losses.
We generally compete on expertise, responsiveness and price in all of our segments. 10 Table of Contents Insurance We maintain liability and other insurance that we believe to be customary and generally consistent with industry practice. We retain a portion of the risk for medical claims, general liability, worker’s compensation and property losses.
The following is a summary of some of the more important factors that could affect our businesses: Business and Operations • Demand for our products could decrease if manufacturers decide to sell them direct. • Changes in our customer or product mix, could cause our gross margins to fluctuate. • Material changes in the costs of our products from manufacturers without the ability to pass price increases onto our customers could cause our gross margins to decline. • Our manufacturers may cancel our oral or written distribution authorizations upon little or no notice, which could adversely impact our revenues and profits from distributing certain manufacturer’s products. • We are subject to increased shipping costs as well as the potential inability of our third-party transportation providers to deliver products on a timely basis. • Our business has substantial competition that could adversely affect our results. • The loss of or the failure to attract and retain key personnel could adversely impact our results of operations. • The loss of any key supplier could adversely affect the Company’s sales and profitability. • Our future results will be impacted by our ability to implement our internal growth strategy. • Our future results will be impacted by the effective execution of our acquisition strategy. • Goodwill and intangible assets recorded as a result of our acquisitions could become impaired. • Interruptions in the proper functioning of our information systems could disrupt operations and cause increases in costs and/or decreases in revenues. • Cybersecurity breaches and other disruptions or misuse of our network and information systems could affect our ability to conduct our business effectively. • Our backlog is subject to unexpected adjustments and potential cancellations • Our actual results could differ from the assumptions and estimates used to prepare our financial statements • If we do not successfully remediate our internal controls weaknesses, our financial statements may not be accurate and the trading price of our stock could be negatively impacted.
The following is a summary of some of the more important factors that could affect our businesses: Business and Operations • Demand for our products could decrease if manufacturers decide to sell them direct. • Changes in our customer or product mix, could cause our gross margins to fluctuate. • Material changes in the costs of our products from manufacturers without the ability to pass price increases onto our customers could cause our gross margins to decline. • Our manufacturers may cancel our oral or written distribution authorizations upon little or no notice, which could adversely impact our revenues and profits from distributing certain manufacturer’s products. • We may experience unexpected supply shortages, which could adversely affect our product and service offerings and our business. • Price reductions by our manufacturers of products that we sell could cause the value of our inventory to decline. • We are subject to increased shipping costs as well as the potential inability of our third-party transportation providers to deliver products on a timely basis. • Our business has substantial competition that could adversely affect our results. • The loss of or the failure to attract and retain key personnel could adversely impact our results of operations. • The loss of any key supplier could adversely affect the Company’s sales and profitability. • Our future results will be impacted by our ability to implement our internal growth strategy. • Our future results will be impacted by the effective execution of our acquisition strategy. • Goodwill and intangible assets recorded as a result of our acquisitions could become impaired. • Interruptions in the proper functioning of our information systems could disrupt operations and cause increases in costs and/or decreases in revenues. • Cybersecurity breaches and other disruptions or misuse of our network and information systems could affect our ability to conduct our business effectively. • Our backlog is subject to unexpected adjustments and potential cancellations. • Our actual results could differ from the assumptions and estimates used to prepare our financial statements. • If we do not successfully remediate our internal controls weaknesses, our financial statements may not be accurate and the trading price of our stock could be negatively impacted.
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended (the “Exchange Act”), are available free of charge through our Internet website ( www.dxpe.com ) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended (the “Exchange Act”), are available free of charge through our internet website ( www.dxpe.com ) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S.
Such a combination could materially increase the severity of the impact of these risks on our results of operations, liquidity and financial condition. 13 Table of Contents We face a variety of risks that are substantial and inherent in our businesses.
Such a combination could materially increase the severity of the impact of these risks on our results of operations, liquidity and financial condition. 14 Table of Contents We face a variety of risks that are substantial and inherent in our businesses.
Maestas has been with DXP since 2002 and leads the Company's e-Commerce and Omni-Channel initiatives. In his 20 years with DXP, he has served in various roles and most recently as Vice President of Marketing and Operations. He holds a Bachelor of Science from the University of Texas at Austin. 12 Table of Contents David C. Vinson. Mr.
Maestas has been with DXP since 2002 and leads the Company's e-Commerce and Omni-Channel initiatives. In his 20 years with DXP, he has served in various roles and most recently as Vice President of Marketing and Operations. He holds a Bachelor of Science from the University of Texas at Austin. David C. Vinson. Mr.
Legal and Regulatory • Risks associated with substantial or material claim or lawsuits that are not covered by insurance. • The nature of our manufactured products carries the possibility of significant product liability and warranty claims, which could harm our business and future results. • We are subject to potential shareholder litigation associated with potential volatile trading of our common stock. • We are subject to personal injury and product liability claims involving allegedly defective products. • We are subject to risks associated with conducting business in foreign countries. • We are subject to environmental, health and safety laws and regulations. • We are subject to various government regulations, the cost of compliance of such regulations could increase our cost of conducting business and any violations of such regulations could materially adversely affect our financial condition or results of operations. 14 Table of Contents The following are more detailed discussions of our Risk Factors summarized above: Risk Related to the Company's Business and Operations Demand for our products could decrease if the manufacturers of those products sell them directly to end users.
Legal and Regulatory • Risks associated with substantial or material claim or lawsuits that are not covered by insurance. • The nature of our manufactured products carries the possibility of significant product liability and warranty claims, which could harm our business and future results. • We are subject to potential shareholder litigation associated with potential volatile trading of our common stock. • We are subject to personal injury, product liability and environmental claims involving allegedly defective products. • We are subject to risks associated with conducting business in foreign countries. • We are subject to environmental, health and safety laws and regulations that may lead to liabilities and negatively impact our business. • We are subject to various government regulations, the cost of compliance of such regulations could increase our cost of conducting business and any violations of such regulations could materially adversely affect our financial condition or results of operations. 15 Table of Contents The following are more detailed discussions of our Risk Factors summarized above: Risk Related to the Company's Business and Operations Demand for our products could decrease if the manufacturers of those products sell them directly to end users.
Adjustments are reflected in contract revenue in the period when such estimates are revised. Such adjustments could be material and could result in reduced profitability. 17 Table of Contents If we do not successfully remediate our internal controls weaknesses, our financial statements may not be accurate and the trading price of our stock could be negatively impacted.
Adjustments are reflected in contract revenue in the period when such estimates are revised. Such adjustments could be material and could result in reduced profitability. If we do not successfully remediate our internal controls weaknesses, our financial statements may not be accurate and the trading price of our stock could be negatively impacted.
Additionally, we make the following available free of charge through our Internet website ir.dxpe.com : • DXP Code of Ethics for Senior Financial Officers; • DXP Code of Conduct; • DXP Conflict Minerals Policy; • DXP Anti-Corruption Policy; • Compensation Committee Charter; • Nominating and Governance Committee Charter; and • Audit Committee Charter ITEM 1A.
Additionally, we make the following available free of charge through our internet website ir.dxpe.com : • DXP Code of Ethics for Senior Financial Officers; • DXP Code of Conduct; • DXP Conflict Minerals Policy; • DXP Anti-Corruption Policy; • Compensation Committee Charter; • Nominating and Governance Committee Charter; and • Audit Committee Charter • Corporate Sustainability Report ITEM 1A.
Our ability to grow at or above our historic rates depends in part upon our ability to identify and successfully acquire and integrate companies and businesses at appropriate prices and realize anticipated cost savings. Goodwill and intangible assets recorded as a result of our acquisitions could become impaired.
Our ability to grow at or above our historic rates depends in part upon our ability to identify and successfully acquire and integrate companies and businesses at appropriate prices and realize anticipated cost savings. 17 Table of Contents Goodwill and intangible assets recorded as a result of our acquisitions could become impaired.
The Company believes its colleagues around the world thrive in this culture, as it allows them to experience significant autonomy, a sense of shared ownership with their colleagues, and a work atmosphere deeply rooted in the Company's core values. Compensation and Benefits.
The Company believes its colleagues around the world thrive in this culture, as it allows them to experience significant autonomy, a sense of shared ownership with their colleagues, and a work atmosphere deeply rooted in the Company's core values. 11 Table of Contents Compensation and Benefits.
Jeffery has served in various significant capacities including branch, area, regional and national sales management as well as sales, marketing, information technology and Service Center vice president roles. He holds a Bachelor of Science in Industrial Distribution from Texas A&M University and is also a graduate of the Executive Business Program at Rice University. Todd Hamlin. Mr.
Jeffery has served in various significant capacities including branch, area, regional and national sales management as well as sales, marketing, information technology and Service Center vice president roles. He holds a Bachelor of Science in Industrial Distribution from Texas A&M University and is also a graduate of the Executive Business Program at Rice University. 13 Table of Contents Todd Hamlin.
He holds a Bachelor’s of Science in Industrial Distribution from Texas A&M University and a Master in Distribution from Texas A&M University. Mr. Hamlin serves on the Advisory Board for Texas A&M’s Master in Distribution degree program. In 2014, Mr. Hamlin was elected to the Bearing Specialists Association’s Board of Directors.
He holds a Bachelor’s of Science in Industrial Distribution from Texas A&M University and a Master in Distribution from Texas A&M University. Mr. Hamlin serves on the Advisory Board for Texas A&M’s Master in Distribution degree program. In 2014, Mr. Hamlin was elected to the Bearing Specialists Association’s Board of Directors. David Molero Santos. Mr.
If such circumstance happens, our business, reputation, results of operations or financial condition could be adversely affected and our existing debt could be in default. Our failure to comply with financial covenants of our credit facilities may adversely affect our results of operations and our financial conditions.
If such circumstance happens, our business, reputation, results of operations or financial condition could be adversely affected and our existing debt could be in default. 20 Table of Contents Our failure to comply with financial covenants of our credit facilities may adversely affect our results of operations and our financial conditions.
We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management's attention from other business concerns, which could adversely affect our business. 20 Table of Contents We are subject to personal injury and product liability claims involving allegedly defective products.
We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management's attention from other business concerns, which could adversely affect our business. We are subject to personal injury, product liability and environmental claims involving allegedly defective products.
Sales are directly solicited from customers by our sales force. The Company's Service Centers are stocked and staffed with knowledgeable sales associates and backed by a centralized customer service team of experienced industry professionals. At December 31, 2022, our Service Centers’ products and services were distributed from 156 service centers and 4 distribution centers.
Sales are directly solicited from customers by our sales force. The Company's Service Centers are stocked and staffed with knowledgeable sales associates and backed by a centralized customer service team of experienced industry professionals. At December 31, 2023, our Service Centers’ products and services were distributed from 157 service centers and 4 distribution centers.
We are also subject to audits and inquiries in the ordinary course of business. Changes to the legal and regulatory environments could increase the cost of doing business, and such costs may increase in the future as a result of changes in these laws and regulations or in their interpretation.
We are also subject to audits and inquiries in the ordinary course of business. Changes to the legal and regulatory environments could increase the cost of doing business and could negatively affect our earnings, and such costs may increase in the future as a result of changes in these laws and regulations or in their interpretation.
Total backlog, representing firm orders for the IPS segment products that have been received and entered into our production systems, was $108.5 million and $96.9 million at December 31, 2022 and 2021, respectively. Supply Chain Services The Company's Supply Chain Services (SCS) segment manages all or part of its customers’ supply chains, including procurement and inventory management.
Total backlog, representing firm orders for the IPS segment products that have been received and entered into our production systems, was $138.4 million and $108.5 million at December 31, 2023 and 2022, respectively. Supply Chain Services The Company's Supply Chain Services (SCS) segment manages all or part of its customers’ supply chains, including procurement and inventory management.
Credit and Access to Debt Capital • We may not be able to refinance on favorable terms, extend, or repay our debt, which could adversely affect our results of operations or may result in default of our debt. • Our failure to comply with financial covenants of our credit facilities may adversely affect our results of operations and our financial conditions. • We may not be able to access acquisition financing, including debt capital. • A deterioration in the oil and gas sector or other circumstances may negatively impact our business and results of operations and thus hinder our ability to comply with financial covenants under our credit facilities, including the Secured Leverage Ratio and Fixed Charge Coverage Ratio financial covenants.
Credit and Access to Debt Capital • We may not be able to refinance on favorable terms, extend, or repay our debt, which could adversely affect our results of operations or may result in default of our debt. • Our failure to comply with financial covenants of our credit facilities may adversely affect our results of operations and our financial conditions. • We may not be able to access acquisition financing, including debt capital. • A deterioration in the oil and gas sector or other circumstances may negatively impact our business and results of operations and thus hinder our ability to comply with financial covenants under our credit facilities, including the Secured Leverage Ratio and Fixed Charge Coverage Ratio financial covenants. • Changes in our credit profile may affect our relationship with our suppliers, which could have a material adverse effect on our liquidity.
The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with SEC at http://www.sec.gov.
Securities and Exchange Commission (“SEC”). The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with SEC at http://www.sec.gov.
We are subject to various government regulations, the cost of compliance of such regulations could increase our cost of conducting business and any violations of such regulations could materially adversely affect our financial condition or results of operations. We are subject to laws and regulations in every jurisdiction where we operate.
We are subject to various government regulations, the cost of compliance of such regulations could increase our cost of conducting business and any violations of such regulations could materially adversely affect our financial condition or results of operations. We are subject to laws and regulations in every jurisdiction where we operate including the U.S. and certain foreign countries.
For the last three fiscal years, no manufacturer accounted for 10% or more of our revenues. Over 90% of our business relates to sales of products. Service revenues are less than 10% of sales. The Company has operations in the United States of America, Canada and Dubai.
For the last three fiscal years, no manufacturer accounted for 10% or more of our revenues. Over 90% of our business relates to sales of products. Service revenues are less than 10% of sales. The Company has operations in the U.S., Canada, Mexico, and Dubai.
As of December 31, 2022, our combined goodwill and intangible assets amounted to $413.3 million, net of accumulated amortization. To the extent we do not generate sufficient cash flows to recover the net amount of any investments in goodwill and other intangible assets recorded, the investment could be considered impaired and subject to write-off which would directly impact earnings.
At December 31, 2023, our combined goodwill and intangible assets amounted to $407.9 million, net of accumulated amortization. To the extent we do not generate sufficient cash flows to recover the net amount of any investments in goodwill and other intangible assets recorded, the investment could be considered impaired and subject to write-off which would directly impact earnings.
Our future results will be impacted by our ability to implement our internal growth strategy. Our future results will depend in part on our success in implementing our internal growth strategy, which includes expanding our existing geographic areas, selling additional products to existing customers and adding new customers.
Our future results will depend in part on our success in implementing our internal growth strategy, which includes expanding our existing geographic areas, selling additional products to existing customers and adding new customers.
The failure by us to comply with applicable environmental, health and safety requirements could result in fines, penalties, enforcement actions, third party claims for property damage and personal injury, requirements to clean up property or to pay for the costs of cleanup, or regulatory or judicial orders requiring corrective measures.
The failure by us to comply with applicable environmental, health and safety requirements could result in significant liabilities including fines, penalties, enforcement actions, third party claims for property damage and personal injury, requirements to clean up property or to pay for the costs of cleanup, or regulatory or judicial orders requiring corrective measures, which could negatively impact our business.
None of the Company's U.S. employees are represented by a labor union, while outside the U.S., employees in certain countries are represented by an employee representative organization, such as a union, works council or employee association. The Company considers its employee relations to be excellent.
None of the Company's U.S. employees are represented by a labor union, while outside the U.S., employees in certain countries are represented by an employee representative organization, such as a union, works council or employee association. We believe our employees are key to achieving our business objectives. The Company considers its employee relations to be excellent.
Little 71 Chairman of the Board, President and Chief Executive Officer Kent Yee 47 Senior Vice President/Chief Financial Officer/Secretary Nick Little 41 Senior Vice President/Chief Operating Officer Chris Gregory 48 Senior Vice President/Chief Information Technology Officer Paz Maestas 43 Senior Vice President/Chief Marketing & Technology Officer David C. Vinson 72 Senior Vice President/Innovative Pumping Solutions John J.
Little 72 Chairman of the Board, President and Chief Executive Officer Kent Yee 48 Senior Vice President/Chief Financial Officer/Secretary Nick Little 42 Senior Vice President/Chief Operating Officer Chris Gregory 49 Senior Vice President/Chief Information Technology Officer Paz Maestas 44 Senior Vice President/Chief Marketing & Technology Officer David C. Vinson 73 Senior Vice President/Innovative Pumping Solutions John J.
Sullivan is included within our IPS business segment. Total consideration for the transaction was approximately $6.5 million, funded with a mixture of cash on hand of $4.6 million, the Company's common stock valued at approximately $0.9 million and contingent consideration of $1.0 million. On May 2, 2022, the Company completed the acquisition of Cisco Air Systems, Inc. ("Cisco").
Total consideration for the transaction was approximately $6.5 million, funded with a mixture of cash on hand of $4.6 million, the Company's common stock valued at approximately $0.9 million and contingent consideration of $1.0 million. Goodwill for the transaction totaled approximately $2.5 million. On May 2, 2022, the Company completed the acquisition of Cisco Air Systems, Inc. ("Cisco").
Our computer systems have been, and will likely continue to be, subject to attack. For example, in August 2020, the Company’s computer network was the target of a cyber-attack that we believe was orchestrated by a foreign actor. The systems housing confidential vendor, customer and employee data were not breached in this attack.
For example, in August 2020, the Company’s computer network was the target of a cyber-attack that we believe was orchestrated by a foreign actor. The systems housing confidential vendor, customer and employee data were not breached in this attack.
We currently serve as a first-tier distributor of more than 1,000,000 items of which more than 60,000 are stock keeping units (SKUs) for use primarily by customers engaged in the oil and gas, food and beverage, petrochemical, transportation and other general industrial industries. Other industries served by our Service Centers include mining, construction, chemical, municipal, agriculture and pulp and paper.
We currently serve as a first-tier distributor of more than 1,000,000 items of which more than 60,000 are stock keeping units (SKUs) for use primarily by customers engaged in the oil and gas, food and beverage, chemical and petrochemical, transportation and other general industrial industries.
We conduct a meaningful amount of business outside of the United States of America. We could be adversely affected by economic, legal, political and regulatory developments in countries that we conduct business in. We have meaningful operations in Canada in which the functional currency is denominated in Canadian dollars.
We conduct a meaningful amount of business outside of the U.S. We could be adversely affected by economic, legal, political and regulatory developments in countries that we conduct business in. We have meaningful operations in Canada in which the functional currency is denominated in Canadian dollars. We also have operations in Dubai, where the functional currency is dirham.
Information regarding financial data by geographic areas is set forth in Note 22 - Segment Reporting of the Notes to Consolidated Financial Statements. 8 Table of Contents Recent Acquisitions A key component of our growth strategy includes acquiring businesses with complementary or desirable product lines, locations or customers. Since 2004, we have completed 48 acquisitions across our three business segments.
Information regarding financial data by geographic areas is set forth in Note 19 - Revenue of the Notes to Consolidated Financial Statements. Recent Acquisitions A key component of our growth strategy includes acquiring businesses with complementary or desirable product lines, locations or customers. Since 2004, we have completed 51 acquisitions.
If critical information systems fail or are otherwise unavailable, The Company's ability to procure products to sell, process and ship customer orders, identify business opportunities, maintain proper levels of inventories, collect accounts receivable and pay accounts payable and expenses could be adversely affected. 16 Table of Contents Cybersecurity breaches and other disruptions or misuse of our network and information systems could affect our ability to conduct our business effectively.
If critical information systems fail or are otherwise unavailable, The Company's ability to procure products to sell, process and ship customer orders, identify business opportunities, maintain proper levels of inventories, collect accounts receivable and pay accounts payable and expenses could be adversely affected.
Our foreign operations are subject to certain unique risks, which are more fully disclosed in Item 1A “Risk Factors,” “Risks Associated with Legal and Regulatory Matters” . At December 31, 2022, the Service Centers segment had approximately 1,651 employees, all of whom were full-time.
Our foreign operations are subject to certain unique risks, which are more fully disclosed in Item 1A " Risk Factors, " " Ris ks Associated with Legal and Regulatory Matters " . At December 31, 2023, the Service Centers segment had 1,723 employees, all of whom were full-time.
A catastrophic occurrence at a location where the products we distribute are used may result in us being named as a defendant in lawsuits asserting potentially large claims and applicable law may render us liable for damages without regard to negligence or fault. We are subject to risks associated with conducting business in foreign countries.
A catastrophic occurrence at a location where the products we distribute are used may result in us being named as a defendant in lawsuits asserting potentially large claims even though we did not manufacture the products and applicable law may render us liable for damages without regard to negligence or fault.
It provides a more efficient way to manage the entire life cycle of pumping systems and rotating equipment. 7 Table of Contents The Company's SmartSolutions programs listed above help customers to cut product costs, improve supply chain efficiencies and obtain expert technical support.
It provides a more efficient way to manage the entire life cycle of pumping systems and rotating equipment. The Company's SmartSolutions programs listed above help customers to cut product costs, improve supply chain efficiencies and obtain expert technical support. The Company represents manufacturers of up to 90% of all the maintenance, repair and operating products of our customers.
(in millions) Segment 2022 Sales % of Sales End Markets Locations Employees SC $1,009.4 68.2% General Industrial, Oil & Gas, Food & Beverage, Water & Wastewater, Chemical & Petrochemical, Transportation, Aerospace 156 service centers, 4 distribution centers 1,651 IPS $231.1 15.6% Oil & Gas, Mining, Petrochemical, Water & Wastewater and Utilities 16 fabrication facilities, 4 wastewater locations 337 SCS $240.4 16.2% Food & Beverage, Transportation, Oil & Gas, General Industrial & Chemical 95 customer facilities' 409 5 Table of Contents Service Centers The Service Centers are engaged in providing MRO products, equipment and services, including technical expertise and logistics capabilities, to a variety of customers serving varied end markets with the ability to provide same day delivery.
Segment 2023 Sales (in millions) % of Sales End Markets Locations Employees SC $1,145 68% General Industrial, Oil & Gas, Food & Beverage, Water & Wastewater, Chemical, Transportation, Aerospace & Other 157 service centers, 4 distribution centers 1,723 IPS $273 16% Oil & Gas, Mining, Chemical, Water & Wastewater and Utilities 16 fabrication facilities, 6 wastewater locations 383 SCS $260 16% Food & Beverage, Transportation, Oil & Gas, General Industrial & Chemical 81 customer sites 419 6 Table of Contents Service Centers The Service Centers (SC) are engaged in providing MRO products, equipment and services, including technical expertise and logistics capabilities, to a variety of customers serving varied end markets with the ability to provide same day delivery.
Prior to serving as Vice President of IT Strategic Solutions he served in various roles, including application developer, database manager as well as leading the business intelligence and application development departments.
Gregory joined the Company in August 2006. From December 2014 until January 2018 he served as Vice President of IT Strategic Solutions. Prior to serving as Vice President of IT Strategic Solutions he served in various roles, including application developer, database manager as well as leading the business intelligence and application development departments.
Therefore, sustained low oil and natural gas prices or a decline of such prices could lead to a decrease in our customers’ capital and other expenditures and could adversely affect our revenues. Adverse weather events or natural disasters could negatively disrupt our operations.
A portion of our revenue depends upon the level of capital and operating expenditures in the oil and natural gas industry. Therefore, a significant decline in oil or natural gas prices could lead to a decrease in our customers’ capital and other expenditures and could adversely affect our revenues. Adverse weather events or natural disasters could negatively disrupt our operations.
If certain manufacturers cancel the distribution authorizations they granted to us, our distribution of their products could be disrupted and such occurrence could have a material adverse effect on our results of operations and financial conditions.
If certain manufacturers cancel the distribution authorizations they granted to us, our distribution of their products could be disrupted and such occurrence could have a material adverse effect on our results of operations and financial conditions. We may experience unexpected supply shortages, which could adversely affect our product and service offerings and our business.
We are not currently aware of any environmental situation or violations of government regulations that we believe are likely to have a material adverse effect on our results of operations or financial condition.
We are not currently aware of any environmental situation or violations of government regulations that we believe are likely to have a material adverse effect on our results of operations or financial condition. Human Capital The Company employed 2,837 people as of December 31, 2023.
Market and Economy • The COVID-19 pandemic has and could continue to result in disruptions in supply chain, decreased customer demand, lower oil price and volatility in the stock market and the global economy, which could negatively impact our business, financial position, and results of operations. • A general slowdown in the economy could negatively impact the Company’s sales growth and profitability. • We could be adversely impacted by low oil prices, volatility in oil prices and downturns in the energy industry, including decreased capital expenditures, impacting our customers’ demand for our products and services. • Adverse weather events or natural disasters could negatively disrupt our operations.
Market and Economy • A general slowdown in the economy could negatively impact the Company’s sales growth and profitability. • We could be adversely impacted by low oil prices, volatility in oil prices and downturns in the energy industry, including decreased capital expenditures, impacting our customers’ demand for our products and services. • Adverse weather events or natural disasters could negatively disrupt our operations.
Total consideration for the transaction was approximately $52.3 million, funded with a mixture of cash on hand of $32 million, the Company's common stock valued at approximately $4.4 million and a draw down of approximately $11 million on the ABL and contingent consideration of $4.5 million. On March 1, 2022, the Company completed the acquisition of Drydon Equipment, Inc.
Total consideration for the transaction was approximately $52.3 million, funded with a mixture of cash on hand of $32 million, the Company's common stock valued at approximately $4.4 million, approximately $11 million on the ABL and contingent consideration of $4.5 million. Goodwill for the transaction totaled approximately $30.5 million.
The Company's safety strategy is based on the following core principles: (i) a goal of zero accidents, (ii) shared ownership for safety (business and individual); (iii) proactive approach focused on accident prevention; and (iv) continuous improvement philosophy. Consistent with these commitments, employee health and safety has been a top priority during the COVID-19 pandemic.
The Company's safety strategy is based on the following core principles: (i) a goal of zero accidents, (ii) shared ownership for safety (business and individual); (iii) proactive approach focused on accident prevention; and (iv) continuous improvement philosophy. Workplace Culture.
Demand for our products is subject to economic trends affecting our customers and the industries in which they compete in particular. Many of these industries, such as the manufacturing, food & beverage and oil and gas industry, are subject to volatility while others, such as the petrochemical industry, are cyclical and are materially affected by changes in the economy.
Many of our customers' industries, such as the manufacturing, food & beverage and oil and gas industry, are subject to volatility while others, such as the petrochemical industry, are cyclical and are materially affected by changes in the economy. As a result, demand for our products could be adversely impacted by changes in the markets of our customers.
All of the IPS segment’s long-lived assets are located in the U.S. Approximately 4.7% of the IPS segment’s 2022 revenues were recognized in Canada and 95.3% were in the U.S. At December 31, 2022, the IPS segment had approximately 337 employees, all of whom were full-time.
Approximately 4.8% of the IPS segment’s 2023 revenues were recognized in Canada and 95.2% were in the U.S. 7 Table of Contents At December 31, 2023, the IPS segment had 383 employees, all of whom were full-time.
Computer hackers may attempt to penetrate our information systems or our vendors' information systems and, if successful, misappropriate confidential customer, supplier, employee or other business information. In addition, one of our employees, contractors or other third party may attempt to circumvent security measures in order to obtain such information or inadvertently cause a breach involving such information.
In addition, one of our employees, contractors or other third party may attempt to circumvent security measures in order to obtain such information or inadvertently cause a breach involving such information.
We rely upon third-party transportation providers for our merchandise shipments and are subject to increased shipping costs as well as the potential inability of our third-party transportation providers to deliver products on a timely basis. We rely upon independent third-party transportation providers for our merchandise shipments, including shipments to and from all of our service centers.
Reductions in our margins and profitability on sales could have a material adverse effect on our business. We rely upon third-party transportation providers for our merchandise shipments and are subject to increased shipping costs as well as the potential inability of our third-party transportation providers to deliver products on a timely basis.
On March 1, 2022, the Company completed the acquisition of certain assets of Burlingame Engineers, Inc. ("Burlingame"), a provider of water and wastewater equipment in the industrial and municipal sectors. Burlingame is included within our SC business segment. The Company paid approximately $1.1 million in cash, the Company's common stock and contingent consideration.
("Burlingame"), a provider of water and wastewater equipment in the industrial and municipal sectors. Burlingame is included within our SC business segment. The Company paid approximately $1.1 million including cash, the Company's common stock and contingent consideration. Goodwill for the transaction totaled approximately $0.5 million. Competition Our business is highly competitive.
The Company represents manufacturers of up to 90% of all the maintenance, repair and operating products of our customers. Unlike many other distributors who buy products from second-tier sources, the Company takes customers to the source of the products they need. At December 31, 2022, the SCS segment operated supply chain installations in 95 of our customers’ facilities.
Unlike many other distributors who buy products from second-tier sources, the Company takes customers to the source of the products they need. At December 31, 2023, the SCS segment operated supply chain installations in 81 of our customers’ sites. All of the SCS segment’s long-lived assets are in the U.S. and Mexico.
Even a partially uninsured claim, if successful and of significant size, could have a material adverse effect on our business, results of operations and financial condition. Furthermore, we may not be able to continue to obtain insurance on commercially reasonable terms in the future, and we may incur losses from interruption of our business that exceed our insurance coverage.
Furthermore, we may not be able to continue to obtain insurance on commercially reasonable terms in the future, and we may incur losses from interruption of our business that exceed our insurance coverage.
As a result, demand for our products could be adversely impacted by changes in the markets of our customers. We traditionally do not enter into long-term contracts with our customers which increases the likelihood that economic downturns would affect our business.
We traditionally do not enter into long-term contracts with our customers which increases the likelihood that economic downturns would affect our business. We could be adversely impacted by low oil prices, volatility in oil prices and downturns in the energy industry, including decreased capital expenditures, impacting our customers’ demand for our products and services.
Our business has substantial competition that could adversely affect our results. Our business is highly competitive. We compete with a variety of industrial supply distributors, some of which may have greater financial and other resources than us.
We compete with a variety of industrial supply distributors, some of which may have greater financial and other resources than us.
From March 2011 to June 2017, Mr. Yee served as Senior Vice President Corporate Development and led DXP's mergers and acquisitions, business integration and internal strategic project activities. During March 2011, Mr.
From March 2011 to June 2017, Mr. Yee served as Senior Vice President Corporate Development and led DXP's mergers and acquisitions, business integration, and internal strategic project activities. During March 2011, Mr. Yee joined DXP from Stephens Inc.'s Industrial Distribution and Services team where he served in various positions, including Vice President from August 2005 to February 2011.
If we do not have sufficient cash resources, our growth could be limited unless we are able to obtain additional capital through debt or equity financings. 19 Table of Contents A deterioration in the oil and gas sector or other circumstances may negatively impact our business and results of operations and thus hinder our ability to comply with financial covenants under our credit facilities, including the Secured Leverage Ratio and Fixed Charge Coverage Ratio financial covenants.
A deterioration in the oil and gas sector or other circumstances may negatively impact our business and results of operations and thus hinder our ability to comply with financial covenants under our credit facilities, including the Secured Leverage Ratio and Fixed Charge Coverage Ratio financial covenants.
If we change the shipping companies we use, we could face logistical difficulties that could adversely affect deliveries and we would incur costs and expend resources in connection with such change. In addition, we may not be able to obtain favorable terms as we have with our current third-party transportation providers.
If we change the shipping companies we use, we could face logistical difficulties that could adversely affect deliveries and we would incur costs and expend resources in connection with such change.
We also have operations in Dubai, where the functional currency is dirham. As the value of currencies in foreign countries in which we have operations increases or decreases related to the U.S. dollar, the sales, expenses, profits, losses assets and liabilities of our foreign operations, as reported in our consolidated financial statements, increase or decrease, accordingly.
As the value of currencies in foreign countries in which we have operations increases or decreases related to the U.S. dollar, the sales, expenses, profits, losses assets and liabilities of our foreign operations, as reported in our consolidated financial statements, increase or decrease, accordingly. 22 Table of Contents We are subject to environmental, health and safety laws and regulations that may lead to significant liabilities and negatively impact our business.
In the Innovative Pumping Solutions segment we compete against a variety of manufacturers, distributors and fabricators, many of which may have greater financial and other resources than we do.
While certain catalog distributors provide product offerings as broad as ours, these competitors do not offer the product application, technical expertise and after-the-sale services that we provide. In the Innovative Pumping Solutions segment we compete against a variety of manufacturers, distributors and fabricators, many of which may have greater financial and other resources than we do.
Through our sales channels and electronic communications with customers generally, we collect and maintain confidential information that customers provide to us in order to purchase products or services. We also acquire and retain information about suppliers and employees in the normal course of business.
Cybersecurity breaches and other disruptions or misuse of our network and information systems could affect our ability to conduct our business effectively. Through our sales channels and electronic communications with customers generally, we collect and maintain confidential information that customers provide to us in order to purchase products or services.
He holds a Bachelor of Business Administration in Finance from Baylor University. Chris Gregory . Mr. Gregory was appointed Senior Vice President and Chief Information Officer in March of 2018. Mr. Gregory joined the Company in August 2006. From December 2014 until January 2018 he served as Vice President of IT Strategic Solutions.
As Chief Operating Officer, Mr. Little is responsible for the execution of the strategic direction of the Company and oversees sales, operations, and inventory management & procurement of DXP. He holds a Bachelor of Business Administration in Finance from Baylor University. Chris Gregory . Mr. Gregory was appointed Senior Vice President and Chief Information Officer in March of 2018. Mr.
Many of these distribution rights are pursuant to contracts that are subject to cancellation upon little or no prior notice. The termination or limitation by any key supplier of its relationship with the Company could result in a temporary disruption of our business and, in turn, could adversely affect our results of operations and financial condition.
The termination or limitation by any key supplier of its relationship with the Company could result in a temporary disruption of our business and, in turn, could adversely affect our results of operations and financial condition. Our future results will be impacted by our ability to implement our internal growth strategy.
Pump packages require MRO products and original equipment manufacturers’ (OEM) equipment such as pumps, motors, valves, and consumable products such as welding supplies.
Pump packages require MRO products and original equipment manufacturers’ (OEM) equipment such as pumps, motors, valves, and consumable products such as welding supplies. The Company leverages its MRO product inventories and breadth of authorized products to lower the total cost and maintain the quality of our pump packages.
All of our executive officers hold office at the pleasure of the Company's Board of Directors. NAME AGE TITLE David R.
Executive Officers The following is a list of the Company's executive officers, their age, positions, and a description of each officer’s business experience as of March 11, 2024. All of our executive officers hold office at the pleasure of the Company's Board of Directors. NAME AGE TITLE David R.
The Service Centers segment’s long-lived assets are located in the United States, Canada and Dubai. Approximately 6.9% of the Service Centers segment’s revenues were in Canada and the remainder was virtually all in the U.S.
Other industries served by our Service Centers include mining, construction, chemical, municipal water and wastewater, agriculture and pulp and paper. The Service Centers segment’s long-lived assets are located in the U.S., Canada and Dubai. Approximately 5.0% of the Service Centers segment’s revenues were in Canada and the remainder was virtually all in the U.S.
We maintain insurance to cover potential losses, and we are subject to various deductibles and caps under our insurance. It is possible, however, that judgments could be rendered against us in cases in which we would be uninsured and beyond the amounts that we currently have reserved or anticipate incurring for such matters.
It is possible, however, that judgments could be rendered against us in cases in which we would be uninsured and beyond the amounts that we currently have reserved or anticipate incurring for such matters. Even a partially uninsured claim, if successful and of significant size, could have a material adverse effect on our business, results of operations and financial condition.
As discussed in Item 9A, “Management's Report on Internal Control Over Financial Reporting,” we concluded we have material weaknesses in our internal controls during 2022. If we fail to successfully remediate these weaknesses, our financial statements may not be accurate and the trading price of our stock could be negatively impacted.
As discussed in Item 9A, “Management's Report on Internal Control Over Financial Reporting,” we concluded we have material weaknesses in our internal controls during 2023.
He holds a Bachelors of Arts in Urban Planning from Morehouse College and an MBA from Harvard University Graduate School of Business. Nick Little . Mr. Little was appointed Senior Vice President/Chief Operating Officer in January 2021. Mr. Little began his career with DXP nearly twenty years ago as an application engineer. During his tenure at DXP, Mr.
Little was appointed Senior Vice President/Chief Operating Officer in January 2021. Mr. Little began his career with DXP nearly twenty years ago as an application engineer. During his tenure at DXP, Mr. Little has held various roles of increasing responsibility including outside sales, Director of Operations and more recently as the Regional Vice President of Sales and Operations.
("Drydon"), a distributor and manufacturers’ representative of pumps, valves, controls and process equipment focused on serving the water and wastewater industry in the Midwest. The acquisition of Drydon was funded with cash on hand and an issuance of DXP's common stock.
On March 1, 2022, the Company completed the acquisition of Drydon Equipment, Inc. ("Drydon"), a distributor and manufacturers’ representative of pumps, valves, controls and process equipment focused on serving the water and wastewater industry in the Midwest. Drydon is included within our IPS business segment.
If we are unable to comply with our financial covenants or obtain a waiver or amendment of those covenants or obtain alternative financing, our business and financial condition would be adversely affected. Risks Related to Legal and Regulatory Matters Risks associated with substantial or material claim or lawsuits that are not covered by insurance.
Risks Related to Legal and Regulatory Matters Risks associated with substantial or material claim or lawsuits that are not covered by insurance.
In addition, our ability to grow successfully will be dependent upon our ability to attract and retain qualified management and technical and operational personnel.
In addition, our ability to grow successfully will be dependent upon our ability to attract and retain qualified management and technical and operational personnel. The failure to attract and retain such persons could materially adversely affect our financial condition and results of operations. The loss of any key supplier could adversely affect the Company’s sales and profitability.
Some of these claims may relate to the activities of businesses that we have acquired, even though these activities may have occurred prior to acquisition. The products we distribute, and/or manufacture, are subject to inherent risks that could result in personal injury, property damage, pollution, death or loss of production.
Some of these claims may relate to the activities of businesses that we have acquired, even though these activities may have occurred prior to acquisition.
Headcount by segment and country are as follows: Business Segment Employees Country Employees Service Centers 1,651 United States 2,433 Innovative Pumping Solutions 337 Canada 232 Supply Chain Services 409 Other 10 Corporate 278 Total Employees 2,675 Total Employees 2,675 We believe our employees are key to achieving our business objectives.
Headcount by segment and country are as follows: Business Segment Employees Country Employees Service Centers 1,723 United States 2,613 Innovative Pumping Solutions 383 Canada 213 Supply Chain Services 419 Other (1) 11 Corporate 312 Total Employees 2,837 Total Employees 2,837 (1) Includes employees located in Mexico and Dubai.
The following briefly describes the Company’s acquisition activity for the years ended December 31, 2022 and December 31, 2021. On September 1, 2022, the Company completed the acquisition of Sullivan Environmental Technologies, Inc. ("Sullivan"). Sullivan is a leading distributor for the municipal and industrial water and wastewater treatment industries in Ohio, Kentucky, and Indiana.
The following briefly describes the Company’s acquisition activity for the years ended December 31, 2023 and December 31, 2022. 9 Table of Contents On November 1, 2023, the Company completed the acquisition of Alliance Pump & Mechanical Service, Inc. (“Alliance”). Alliance is a leading municipal and industrial pump sales, service, and repair business.
Products Most industrial customers currently purchase their MRO products through local or national distribution companies that are focused on single or unique product categories. As a first-tier distributor, our network of service and distribution centers stock more than 60,000 SKUs and provide customers with access to more than 1,000,000 items.
As a first-tier distributor, our network of service and distribution centers stock more than 60,000 SKUs and provide customers with access to more than 1,000,000 items. Given our breadth of product and our industrial distribution customers’ focus around specific product categories, we have become customer driven experts in five key product categories.
Yee was also an Associate in the Global Syndicated Finance Group at JPMorgan Chase. He has executed over 48 transactions including more than $1.5 billion in M&A and $3.4 billion in financing transactions primarily for change of control deals and numerous industrial and distribution acquisition and sale assignments.
He has executed over 52 transactions including more than $1.6 billion in M&A and $3.9 billion in financing transactions primarily for change of control deals and numerous industrial and distribution acquisition and sale assignments. He holds a Bachelors of Arts in Urban Planning from Morehouse College and an MBA from Harvard University Graduate School of Business. Nick Little . Mr.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAlso see “Risk Factors,” included in Item 1A of this Report for additional risk factors associated with our business. 42 Table of Contents
Biggest changeTo monitor our currency exchange rate risks, we use sensitivity analysis, which measures the effect of devaluation of the Canadian dollar. Also see “Risk Factors,” included in Item 1A of this Report for additional risk factors associated with our business. 40 Table of Contents
To reduce our interest rate risk we may enter into financial derivative instruments, including, but not limited to, interest rate swaps and rate lock agreements to manage and mitigate our exposure. As of December 31, 2022, we had no interest rate hedges in place.
To reduce our interest rate risk we may enter into financial derivative instruments, including, but not limited to, interest rate swaps and rate lock agreements to manage and mitigate our exposure. As of December 31, 2023, we had no interest rate hedges in place.
These amounts were estimated by considering the effect of the hypothetical interest rates on variable-rate debt outstanding each year. 41 Table of Contents Foreign Currency Risk We are exposed to foreign currency risk from our Canadian operations.
These amounts were estimated by considering the effect of the hypothetical interest rates on variable-rate debt outstanding each year. 39 Table of Contents Foreign Currency Risk We are exposed to foreign currency risk from our Canadian operations.
Comparatively, based on a sensitivity analysis as of December 31, 2021, had short-term interest rates averaged 100 basis points higher (lower) in 2021 than in 2020, it was estimated that interest expense would have fluctuated by approximately $3.3 million.
Comparatively, based on a sensitivity analysis as of December 31, 2022, had short-term interest rates averaged 100 basis points higher (lower) in 2022 than in 2021, it was estimated that interest expense would have fluctuated by approximately $4.3 million.
Based on a sensitivity analysis as of December 31, 2022, it was estimated that if short-term interest rates average 100 basis points higher (lower) in 2022 than in 2021, interest expense, would fluctuate by $4.3 million before tax.
Based on a sensitivity analysis as of December 31, 2023, it was estimated that if short-term interest rates average 100 basis points higher (lower) in 2023 than in 2022, interest expense, would fluctuate by $5.5 million before tax.
Removed
To monitor our currency exchange rate risks, we use sensitivity analysis, which measures the effect of devaluation of the Canadian dollar. An average 10% devaluation in the Canadian dollar exchange rate during 2022 would have resulted in an estimated net loss on the translation of local currency earnings of approximately $0.4 million on our Consolidated Statement of Operations.

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