DXP Enterprises, Inc. is a leading business-to-business distributor of maintenance, repair, and operations (MRO) products, equipment, and integrated services. The company operates through three main segments: Service Centers, Innovative Pumping Solutions, and Supply Chain Services. DXP has established itself as a trusted partner for its industrial customers, providing essential products and solutions to keep their operations running smoothly.
Financials
In the fiscal year 2023, DXP reported annual revenue of $1,678,600,000 and net income of $68,812,000. The company's strong financial performance was driven by its diversified business model and strategic focus on serving a wide range of industrial end markets. DXP's annual operating cash flow reached $106,222,000, while its free cash flow stood at $93,959,000, showcasing the company's ability to generate substantial cash flow to fund its growth initiatives and return capital to shareholders.
During the first quarter of 2024, DXP continued to demonstrate its resilience and adaptability. The company reported quarterly revenue of $412,635,000, a 1.4% sequential increase from the previous quarter. This top-line growth was supported by the company's diverse end markets and its ability to navigate the evolving market conditions.
Segment Performance
DXP's Innovative Pumping Solutions (IPS) segment led the way, with a 3.2% sequential increase in sales and a 21% year-over-year growth. This performance was driven by the continued strength in the energy-related backlog, which grew 2.7% over the previous quarter's average and remained ahead of historical averages, except for 2018 and 2019 levels.
The Service Centers (SC) segment experienced a 1.1% sequential increase in sales, showcasing the segment's ability to maintain balanced growth across its diverse customer base. Regions within the SC segment, such as the South Atlantic, North Central, and the company's Canadian rotating equipment and steel division, all reported sequential and year-over-year sales growth.
The Supply Chain Services (SCS) segment grew 1.1% sequentially, though it declined 7.6% year-over-year. This performance was primarily due to facility closures with some existing customers and the streamlining and efficiency improvements implemented for a new diversified chemical customer added in the previous year. The company remains focused on adding new customers to drive growth in this segment.
Profitability
DXP's overall gross profit margin for the first quarter of 2024 was 30%, a 55-basis point improvement over the same period in the prior year. This margin expansion was attributed to the consistent performance in the Service Centers and Innovative Pumping Solutions segments, as well as the contribution from recent acquisitions.
The company's adjusted EBITDA for the first quarter of 2024 was $40,343,000, representing an EBITDA margin of 9.8%. While this was slightly below the company's stated goal of 10%+ EBITDA margin, DXP management highlighted that the slight decline was due to normal financial seasonality, including higher payroll taxes and insurance costs, as well as some unique one-time items related to acquisitions and legal expenses.
Liquidity
DXP's balance sheet remains strong, with $139,697,000 in cash as of March 31, 2024. The company's liquidity position, including available credit facility capacity, totaled $271,600,000, providing ample resources to fund its growth initiatives. During the first quarter, DXP generated $24,095,000 in free cash flow, a 6.4% increase compared to the same period in the prior year.
Capital Allocation
The company's capital allocation strategy remains balanced, with a focus on strategic acquisitions and opportunistic share repurchases. In the first quarter of 2024, DXP completed three acquisitions, including Hennesy Mechanical Sales, Kappe Associates, and Pro-Seal, which are expected to contribute to the company's future growth. Additionally, DXP repurchased $16,805,000 worth of its common stock, demonstrating its commitment to enhancing shareholder value.
Outlook
Looking ahead, DXP remains optimistic about its growth prospects. The company's diversified business model, exposure to sustainable end markets, and strategic investments in acquisitions and organic initiatives position it well to navigate the evolving market landscape. Management highlighted that the company's acquisition pipeline remains active, and they anticipate closing an additional acquisition before the end of the second quarter of 2024, bringing the total to four acquisitions in the first half of the year.
Conclusion
DXP's resilience and adaptability have been key drivers of its consistent performance. The company's focus on providing critical MRO solutions, project capabilities, and exposure to growing end markets, such as water and wastewater, and various energy sectors, are expected to continue fueling its future sales and profitability. As DXP navigates the challenges and opportunities ahead, the company remains committed to delivering value for its shareholders through strategic growth initiatives and prudent capital allocation.