DXP ENTERPRISES, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

DESCRIPTION



Item		Page
PART I: FINANCIAL INFORMATION
	ITEM 1. Financial Statements	3
	a) Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income	3
	b) Unaudited Condensed Consolidated Balance Sheets	4
	c) Unaudited Condensed Consolidated Statements of Cash Flows	5
	d) Unaudited Condensed Consolidated Statements of Equity	6
	e) Notes to Unaudited Condensed Consolidated Financial Statements	7
	ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	1516
	ITEM 3. Quantitative and Qualitative Disclosures about Market Risk	2123
	ITEM 4. Controls and Procedures	2225

PART II: OTHER INFORMATION			2326
	ITEM 1. Legal Proceedings	2326
	ITEM 1A. Risk Factors	2326
	ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	2427
	ITEM 3. Default upon Senior Securities	2427
	ITEM 4. Mine Safety Disclosures	2427
	ITEM 5. Other Information	2427
	ITEM 6. Exhibits	2528
	Signatures	2629

PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

DXP ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(in thousands, except per share amounts) (unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Sales	$	251,401	$	333,318	$	552,384	$	644,543
Cost of sales	181,705		241,331		398,703		468,356
Gross profit	69,696		91,987		153,681		176,187
Selling, general and administrative expenses	62,943		69,140		136,013		138,524
Income from operations	6,753		22,847		17,668		37,663
Other income	133		185		(701)		152
Interest expense	3,930		4,885		8,307		9,925
Income before income taxes	2,690		17,777		10,062		27,586
Provision for income taxes	610		4,427		2,334		7,049
Net income	2,080		13,350		7,728		20,537
Net (loss) attributable to noncontrolling interest	(62)		(109)		(124)		(213)
Net income attributable to DXP Enterprises, Inc.	2,142		13,459		7,852		20,750
Preferred stock dividend	22		22		45		45
Net income attributable to common shareholders	$	2,120	$	13,437	$	7,807	$	20,705

Net income	$	2,080	$	13,350	$	7,728	$	20,537
Currency translation adjustments	1,395		(139)		232		563
Comprehensive income	$	3,475	$	13,211	$	7,960	$	21,100

Earnings per share :
Basic	$	0.12	$	0.76	$	0.44	$	1.18
Diluted	$	0.12	$	0.73	$	0.42	$	1.13
Weighted average common shares outstanding :
Basic	17,735		17,596		17,719		17,581
Diluted	18,575		18,436		18,559		18,421

Three Months Ended March 31,
2020 2019
Sales $ 300,983
$ 311,225
Cost of sales 216,998
227,025
Gross profit 83,985
84,200
Selling, general and administrative expenses 73,070
69,384
Income from operations 10,915
14,816
Other income (834 ) (33 )
Interest expense 4,377
5,040
Income before income taxes 7,372
9,809
Provision for income taxes 1,724
2,622
Net income 5,648
7,187
Net (loss) attributable to noncontrolling interest (62 ) (104 )
Net income attributable to DXP Enterprises, Inc. 5,710
7,291
Preferred stock dividend 23
23
Net income attributable to common shareholders $ 5,687
$ 7,268

Net income $ 5,648
$ 7,187
Currency translation adjustments (1,163 ) 702
Comprehensive income $ 4,485
$ 7,889

Earnings per share :
     Basic $ 0.32
$ 0.41
     Diluted $ 0.31
$ 0.40
Weighted average common shares outstanding :
     Basic 17,713
17,566
     Diluted 18,553
18,406

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

DXP ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data) (unaudited)


	As of
	June 30, 2020		December 31, 2019
ASSETS
Current assets:
Cash	$	78,678	$	54,203
Restricted cash	91		124
Accounts Receivable, net of allowance for doubtful accounts of $9,272 and $8,929	154,804		187,116
Inventories	131,828		129,364
Costs and estimated profits in excess of billings	30,376		32,455
Prepaid expenses and other current assets	6,120		4,223
Federal income taxes receivable	332		996
Total current assets	402,229		408,481
Property and equipment, net	62,962		63,703
Goodwill	202,502		194,052
Other intangible assets, net	50,540		52,582
Operating lease ROU assets	61,187		66,191
Other long-term assets	3,710		3,211
Total assets	$	783,130	$	788,220
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt	$	2,500	$	2,500
Trade accounts payable	82,407		76,438
Accrued wages and benefits	21,789		23,412
Customer advances	5,437		3,408
Billings in excess of costs and estimated profits	3,569		11,871
Short-term operating lease liabilities	15,879		17,603
Other current liabilities	17,638		12,939
Total current liabilities	149,219		148,171
Long-term debt, net of current maturities and unamortized debt issuance costs	220,107		235,419
Long-term operating lease liabilities	44,158		48,605
Other long-term liabilities	1,027		1,205
Deferred income taxes	10,774		9,872
Total long-term liabilities	276,066		295,101
Total liabilities	425,285		443,272
Commitments and contingencies (Note 11)
Shareholders' Equity:
Series A and B preferred stock, $1.00 par value each; 1,000,000 shares authorized each	16		16
Common stock, $0.01 par value, 100,000,000 shares authorized; 17,772,603 and 17,604,092 outstanding	175		174
Additional paid-in capital	163,094		157,886
Retained earnings	213,260		205,680
Accumulated other comprehensive loss	(19,722)		(19,954)
Total DXP Enterprises, Inc. Equity	356,823		343,802
Noncontrolling interest	1,022		1,146
Total Equity	357,845		344,948
Total liabilities and Equity	$	783,130	$	788,220

As of
March 31, 2020 December 31, 2019
ASSETS
Current assets:
Cash $ 32,730
$ 54,203
Restricted cash 124
124
Accounts Receivable, net of allowance for doubtful accounts of $8,908 and $8,929
194,061
187,116
Inventories 133,021
129,364
Costs and estimated profits in excess of billings 35,756
32,455
Prepaid expenses and other current assets 6,776
4,223
Federal income taxes receivable 840
996
Total current assets 403,308
408,481
Property and equipment, net 63,867
63,703
Goodwill 202,502
194,052
Other intangible assets, net 53,324
52,582
Operating lease ROU assets 65,268
66,191
Other long-term assets 3,422
3,211
Total assets $ 791,691
$ 788,220
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt $ 2,500
$ 2,500
Trade accounts payable 82,647
76,438
Accrued wages and benefits 18,387
23,412
Customer advances 5,830
3,408
Billings in excess of costs and estimated profits 4,535
11,871
Short-term operating lease liabilities 15,926
17,603
Other current liabilities 14,727
12,939
Total current liabilities 144,552
148,171
Long-term debt, net of current maturities and unamortized debt issuance costs 235,263
235,419
Long-term operating lease liabilities 47,480
48,605
Other long-term liabilities 708
1,205
Deferred income taxes 11,468
9,872
Total long-term liabilities 294,919
295,101
Total liabilities 439,471
443,272
Commitments and contingencies (Note 11)

Shareholders' Equity:
Series A and B preferred stock, $1.00 par value each; 1,000,000 shares authorized each 16
16
Common stock, $0.01 par value, 100,000,000 shares authorized; 17,721,269 and 17,604,092 outstanding
175
174
Additional paid-in capital 160,695
157,886
Retained earnings 211,367
205,680
Accumulated other comprehensive loss (21,117 ) (19,954 )
Total DXP Enterprises, Inc. Equity 351,136
343,802
Noncontrolling interest 1,084
1,146
Total Equity 352,220
344,948
Total liabilities and Equity $ 791,691
$ 788,220

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

DXP ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (unaudited)


	Six Months Ended June 30,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income attributable to DXP Enterprises, Inc.	$	7,852	$	20,750
Less: net loss attributable to non-controlling interest	(124)		(213)
Net income	7,728		20,537
Reconciliation of net income to net cash used in operating activities:
Depreciation	5,747		4,654
Amortization of intangible assets	6,243		7,617
Gain on sale of property and equipment	—		(8)
Bad debt expense	434		(228)
Payment of contingent consideration liability in excess of acquisition-date fair value	(136)		(106)
Fair value adjustment on contingent consideration	39		66
Amortization of debt issuance costs	937		936
Stock compensation expense	1,887		1,029
Deferred income taxes	174		926
Changes in operating assets and liabilities
Trade accounts receivable	34,416		(17,402)
Costs and estimated profits in excess of billings	2,032		(2,953)
Inventories	(935)		(13,114)
Prepaid expenses and other assets	2,586		7,295
Trade accounts payable and accrued expenses	13,572		911
Billings in excess of costs and estimated profits	(8,296)		(4,774)
Other long-term liabilities	(4,664)		(8,846)
Net cash provided by (used in) operating activities	$	61,764	$	(3,460)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(5,133)		(8,584)
Proceeds from the sale of property and equipment	123		34
Acquisition of business, net of cash acquired	(14,153)		—
Net cash used in investing activities	$	(19,163)	$	(8,550)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal debt payments	(16,250)		(1,700)
Issuance of Common Stock sold in public market	1,142		—
Payment for contingent consideration liability	(1,864)		(1,394)
Dividends paid	(45)		(45)
Payment for employee taxes withheld from stock awards	(116)		(128)
Net cash used in financing activities	$	(17,133)	$	(3,267)
Effect of foreign currency on cash	(1,025)		311
Net change in cash and restricted cash	24,443		(14,966)
Cash and restricted cash at beginning of period	54,326		40,519
Cash and restricted cash at end of period	$	78,769	$	25,553

Three Months Ended March 31,
2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income attributable to DXP Enterprises, Inc. $ 5,710
$ 7,291
Less: net loss attributable to non-controlling interest (62 ) (104 )
Net income 5,648
7,187
Reconciliation of net income to net cash used in operating activities:
Depreciation 2,828
2,392
Amortization of intangible assets 3,197
3,814
Gain on sale of property and equipment —
(8 )
Bad debt expense 28
58
Payment of contingent consideration liability in excess of acquisition-date fair value —
(106 )
Fair value adjustment on contingent consideration 13
33
Amortization of debt issuance costs 468
468
Stock compensation expense 904
505
Deferred income taxes 928
722
Changes in operating assets and liabilities
Trade accounts receivable (5,183 ) (5,035 )
Costs and estimated profits in excess of billings (3,381 ) (5,628 )
Inventories (2,215 ) (6,891 )
Prepaid expenses and other assets (1,933 ) 3,389
Trade accounts payable and accrued expenses 6,048
1,085
Billings in excess of costs and estimated profits (7,327 ) (2,514 )
Other long-term liabilities (1,635 ) (4,781 )
Net cash used in operating activities $ (1,612 ) $ (5,310 )

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,235 ) (2,312 )
Proceeds from the sale of property and equipment —
29
Acquisition of business, net of cash acquired (14,153 ) —
Net cash used in investing activities $ (17,388 ) $ (2,283 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal debt payments (625 ) (849 )
Payment for contingent consideration liability —
(1,394 )
Dividends paid (23 ) (23 )
Payment for employee taxes withheld from stock awards (94 ) (44 )
Net cash used in financing activities $ (742 ) $ (2,310 )
Effect of foreign currency on cash (1,730 ) 112
Net change in cash and restricted cash (21,472 ) (9,791 )
Cash and restricted cash at beginning of period 54,326
40,519
Cash and restricted cash at end of period $ 32,854
$ 30,728

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

DXP ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(in thousands) (unaudited)


	Series A preferred stock		Series B preferred stock		Common stock		Paid-in capital		Retained earnings		Non controlling interest		Accum other comp loss		Total equity
Balance at March 31, 2019	$	1	$	15	$	174	$	156,651	$	177,003	$	1,302	$	(18,565)	$	316,581
Preferred dividends paid	—		—		—		—		(22)		—		—		$	(22)
Compensation expense for restricted stock	—		—		—		524		—		—		—		$	524
Tax related items for share based awards	—		—		—		(84)		—		—		—		$	(84)
Currency translation adjustment	—		—		—		—		—		—		(139)		$	(139)
Net income	—		—		—		—		13,459		(109)		—		$	13,350
Balance at June 30, 2019	$	1	$	15	$	174	$	157,091	$	190,440	$	1,193	$	(18,704)	$	330,210

Series A preferred stock Series B preferred stock Common stock Paid-in capital Retained earnings Non controlling interest Accum other comp loss Total equity
Balance at December 31, 2018 $ 1
$ 15
$ 174
$ 156,190
$ 169,735
$ 1,406
$ (19,267 ) $ 308,254
Preferred dividends paid —
—
—
—
(23 ) —
—
$ (23 )
Compensation expense for restricted stock —
—
—
505
—
—
—
$ 505
Tax related items for share based awards —
—
—
(44 ) —
—
—
$ (44 )
Currency translation adjustment —
—
—
—
—
—
702
$ 702
Net income —
—
—
—
7,291
(104 ) —
$ 7,187
Balance at March 31, 2019 $ 1
$ 15
$ 174
$ 156,651
$ 177,003
$ 1,302
$ (18,565 ) $ 316,581


	Series A preferred stock		Series B preferred stock		Common stock		Paid-in capital		Retained earnings		Non controlling interest		Accum other comp loss		Total equity
Balance at December 31, 2018	$	1	$	15	$	174	$	156,190	$	169,735	$	1,406	$	(19,267)	$	308,254
Preferred dividends paid	—		—		—		—		(45)		—		—		$	(45)
Compensation expense for restricted stock	—		—		—		1,029		—		—		—		$	1,029
Tax related items for share based awards	—		—		—		(128)		—		—		—		$	(128)
Currency translation adjustment	—		—		—		—		—		—		563		$	563
Net income	—		—		—		—		20,750		(213)		—		$	20,537
Balance at June 30, 2019	$	1	$	15	$	174	$	157,091	$	190,440	$	1,193	$	(18,704)	$	330,210


	Series A preferred stock		Series B preferred stock		Common stock		Paid-in capital		Retained earnings		Non controlling interest		Accum other comp loss		Total equity
Balance at March 31, 2020	$	1	$	15	$	175	$	160,695	$	211,367	$	1,084	$	(21,117)	$	352,220
Preferred dividends paid	—		—		—		—		(22)		—		—		(22)
Compensation expense for restricted stock	—		—		—		956		—		—		—		956
Stock compensation expense	—		—		—		27		—		—		—		27
Tax related items for share based awards	—		—		—		(22)		—		—		—		(22)
Issuance of common stock	—		—		—		—		—		—		—		—
Issuance of common stock sold in public markets, net of commissions and fees	—		—		—		1,142		—		—		—		1,142
Currency translation adjustment	—		—		—		296		(227)		—		1,395		1,464
Net income	—		—		—		—		2,142		(62)		—		2,080
Balance at June 30, 2020	$	1	$	15	$	175	$	163,094	$	213,260	$	1,022	$	(19,722)	$	357,845

Series A preferred stock Series B preferred stock Common stock Paid-in capital Retained earnings Non controlling interest Accum other comp loss Total equity
Balance at December 31, 2019 $ 1
$ 15
$ 174
$ 157,886
$ 205,680
$ 1,146
$ (19,954 ) $ 344,948
Preferred dividends paid —
—
—
—
(23 ) —
—
$ (23 )
Compensation expense for restricted stock —
—
—
904
—
—
—
$ 904
Tax related items for share based awards —
—
—
(94 ) —
—
—
$ (94 )
Issuance of shares of common stock —
—
1
1,999
—
—
—
$ 2,000
Currency translation adjustment —
—
—
—
—
—
(1,163 ) $ (1,163 )
Net income —
—
—
—
5,710
(62 ) —
$ 5,648
Balance at March 31, 2020 $ 1
$ 15
$ 175
$ 160,695
$ 211,367
$ 1,084
$ (21,117 ) $ 352,220


	Series A preferred stock		Series B preferred stock		Common stock		Paid-in capital		Retained earnings		Non controlling interest		Accum other comp loss		Total equity
Balance at December 31, 2019	$	1	$	15	$	174	$	157,886	$	205,680	$	1,146	$	(19,954)	$	344,948
Preferred dividends paid	—		—		—		—		(45)		—		—		$	(45)
Compensation expense for restricted stock	—		—		—		1,860		—		—		—		$	1,860
Stock compensation expense	—		—		—		27		—		—		—		$	27
Tax related items for share based awards	—		—		—		(116)		—		—		—		$	(116)
Issuance of shares of common stock	—		—		1		1,999		—		—		—		$	2,000
Issuance of common stock sold in public markets, net of commissions and fees	—		—		—		1,142		—		—		—		$	1,142
Currency translation adjustment	—		—		—		296		(227)				232		$	301
Net income	—		—		—		—		7,852		(124)		—		$	7,728
Balance at June 30, 2020	$	1	$	15	$	175	$	163,094	$	213,260	$	1,022	$	(19,722)	$	357,845

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

DXP ENTERPRISES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - THE COMPANY

DXP Enterprises, Inc. together with its subsidiaries (collectively "DXP," "Company," "us," "we," or "our") was incorporated in Texas on July 26, 1996. DXP Enterprises, Inc. and its subsidiaries are engaged in the business of distributing maintenance, repair and operating ("MRO") products, and service to energy and industrial customers. Additionally, DXP provides integrated, custom pump skid packages, pump remanufacturing and manufactures branded private label pumps to energy and industrial customers. The Company is organized into ~~three~~3 business segments: Service Centers ("SC"), Supply Chain Services ("SCS") and Innovative Pumping Solutions ("IPS"). See Note 12 - Segment Reporting for discussion of the business segments.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING AND BUSINESS POLICIES

Basis of Presentation

The Company's financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). The accompanying condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and its variable interest entity ("VIE"). The accompanying unaudited condensed consolidated financial statements have been prepared on substantially the same basis as our annual consolidated financial statements and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019. For a more complete discussion of our significant accounting policies and business practices, refer to the consolidated Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 13, 2020. The results of operations for the three and ~~three~~six months ended ~~March 31,~~June 30, 2020 are not necessarily indicative of results expected for the full fiscal year. In the opinion of management, these condensed consolidated financial statements contain all adjustments necessary to present fairly the Company's condensed consolidated statements of operations and comprehensive income for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and ~~March 31,~~June 30, 2019, condensed consolidated balance sheets as of ~~March 31,~~June 30, 2020 and December 31, 2019, condensed consolidated statements of cash flows for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and ~~March 31,~~June 30, 2019, and condensed consolidated statement of equity for the ~~three~~six months ended ~~March 31,~~June 30, 2020 and ~~March 31,~~June 30, 2019. All such adjustments represent normal recurring items.

All inter-company accounts and transactions have been eliminated upon consolidation.

NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

Intangibles-Goodwill and Other. In August 2018, the FASB issued ASU No. 2018-15, Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract based on a consensus of the FASB’s Emerging Issues Task Force (EITF) that requires implementation costs incurred by customers in cloud computing arrangements (CCAs) to be deferred and recognized over the term of the arrangement, if those costs would be capitalized by the customer in a software licensing arrangement under the internal-use software guidance in ASC 350-40, “Intangibles-Goodwill and Other-Internal-Use Software”. The ASU does not affect the accounting by cloud service providers, other software vendors or customers’ accounting for software licensing arrangements. The ASU requires companies to recognize deferred implementation costs to expense over the ‘term of the hosting arrangement’. Under the ASU, the term of the hosting arrangement comprises the non-cancellable period of the CCA plus any optional renewal periods that are reasonably certain to be exercised by the customer or for which exercise of the option is controlled by the vendor. The Company adopted the standard effective January 1, 2020. The standard did not have an impact on our results of operations.

Fair Value Measurement. In August 2018, the FASB issued ASU 2018-13: Fair Value Measurement: Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement which eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The Company adopted the standard effective January 1, 2020. The standard did not have an impact on our results of operations.

Measurement of Credit Losses on Financial Instruments. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as later modified by ASUs 2018-19, 2019-04, 2019-05, 2019-11 and 2020-02. This ASU requires estimating all expected credit losses for certain types of financial instruments,

including trade receivables and contract assets, held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The Company adopted this ASU effective January 1, 2020 which resulted in an immaterial impact to beginning retained earnings. While the adoption of this ASU did not have a material impact on the Company's financial statements, it required changes to the Company’s process of estimating expected credit losses on trade receivables and contract assets. The Company carries its accounts receivable at their face amounts less an allowance for expected credit losses. The Company establishes an allowance for expected credit losses to present the net amount of accounts receivable expected to be collected. On a regular basis, the Company evaluates its accounts receivable and contract assets and establishes the allowance for expected credit losses based on a combination of specific customer circumstances (including slow pays and bankruptcies), as well as history of write-offs and collections, current credit conditions and micro and macro-economic forecasts.

Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update provides optional expedients and exceptions for applying generally accepted accounting principles to certain contract modifications and hedging relationships that reference London Inter-bank Offered Rate (LIBOR) or another reference rate expected to be discontinued. The guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company is currently evaluating the potential impact of this ASU on the financial statements.

All other new accounting pronouncements that have been issued but not yet effective are currently being evaluated and at this time are not expected to have a material impact on our financial position or results of operations.

NOTE 4 - LEASES

The Company frequently utilizes operating leases for buildings, vehicles, machinery and equipment. For more information on lease accounting, see Note 4 - Lease to the consolidated financial statements of the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

Supplemental cash flow information related to leases was as follows (in thousands):


	Six Months Ended June 30,	Six Months Ended June 30,
Lease	2020	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	9,183	$	9,138
Right-of-use assets obtained in exchange for lease liabilities
Operating leases	3,933	$	5,740

Three Months Ended March 31, Three Months Ended March 31,
Lease 2020 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases 4,672
4,513
Right-of-use assets obtained in exchange for lease liabilities
Operating leases 4,326
2,935

Supplemental balance sheet information related to leases was as follows (in thousand):


Lease	Classification	March 31, 2020		March 31, 2019		Lease	Classification	June 30, 2020		June 30, 2019
Assets						Assets
Operating	Operating lease right-of-use assets	65,268		70,851		Operating	Operating lease right-of-use assets	61,187		$	69,094

Liabilities						Liabilities
Current operating	Short-term operating lease liabilities	15,926		17,660		Current operating	Short-term operating lease liabilities	15,879		17,887
Non-current operating	Long-term operating lease liabilities	47,480		52,993		Non-current operating	Long-term operating lease liabilities	44,158		51,188
Total operating lease liabilities		$	63,406	$	70,653	Total operating lease liabilities		$	60,037	$	69,075

Three Months Ended March 31,
2020 2019
Operating income for reportable segments $ 31,109
$ 29,865
Adjustment for:
Amortization of intangible assets 3,197
3,814
Corporate expenses 16,997
11,235
Income from operations $ 10,915
$ 14,816
Interest expense 4,377
5,040
Other income, net (834 ) (33 )
Income before income taxes $ 7,372
$ 9,809

NOTE 13 - BUSINESS ACQUISITIONS

On February 1, 2020, the Company completed the acquisition of Turbo Machinery Repair (“Turbo”), a pump and industrial equipment repair, maintenance, machining and labor services company. The Company paid approximately $3.2 million in cash. For the ~~three~~six months ended ~~March 31,~~June 30, 2020, Turbo contributed sales of ~~$0.5~~$1.2 million.

On January 1, 2020, the Company completed the acquisition of substantially all of the assets of Pumping Systems, Inc. (“PSI”), a distributor of pumps, systems and related services. The PSI acquisition was funded with a mixture of cash on hand as well as issuing DXP's common stock. The Company paid approximately $13.0 million in cash and stock. For the ~~three~~six months ended ~~March 31,~~June 30, 2020, PSI contributed sales of ~~$4.7~~$8.5 million.


Purchase Price Consideration	Total Consideration
	(Dollars in millions)
Cash payments	$	14.2
Fair value of stock issued		2.0
Total purchase price consideration	$	16.2

NOTE 14 - SALES OF COMMON STOCK

On May 11, 2020, the Company entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with BMO Capital Markets Corp. (the “Distribution Agent”) pursuant to which the Company may offer and sell shares of the Company’s common stock, par value $0.01 per share, having an aggregate offering price of up to $37,500,000 from time to time through the Distribution Agent. Sales, if any, of the Company’s common stock pursuant to the Equity Distribution Agreement will be made in “at the market offerings” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended. During the three months ended June 30, 2020, the Company issued and sold 46,000 shares of common stock under the Equity Distribution Agreement, with net proceeds totaling approximately $1.1 million, after deducting the Distribution Agent’s commission of approximately $26 thousand.

Purchase Price Consideration Total Consideration
(Dollars in millions)
Cash payments $ 14.2

Fair value of stock issued 2.0

Total purchase price consideration $ 16.2

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management discussion and analysis ("MD&A") of the financial condition and results of operations of DXP Enterprises, Inc. together with its subsidiaries (collectively "DXP," "Company," "us," "we," or "our") for the three and six months ended ~~March 31,~~June 30, 2020 should be read in conjunction with our previous Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q, and the consolidated financial statements and notes thereto included in such reports. The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP").

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this "Report") contains statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements include without limitation those about the Company’s expectations regarding the impact of the COVID-19 pandemic and the impact of low commodity prices of oil and gas; the Company’s business, the Company’s future profitability, cash flow, liquidity, and growth. Such forward-looking statements can be identified by the use of forward-looking terminology such as "believes", "expects", "may", "might", "estimates", "will", "should", "could", "would", "suspect", "potential", "current", "achieve", "plans" or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. Any such forward-looking statements are not guarantees of future performance and may involve significant risks and uncertainties, and actual results may vary materially from those discussed in the forward-looking statements or historical performance as a result of various factors. These factors include the effectiveness of management's strategies and decisions, our ability to implement our internal growth and acquisition growth strategies, general economic and business conditions specific to our primary customers, changes in government regulations, our ability to effectively integrate businesses we may acquire, new or modified statutory or regulatory requirements, availability of materials and labor, inability to obtain or delay in obtaining government or third-party approvals and permits, non-performance by third parties of their contractual obligations, unforeseen hazards such as weather conditions, acts or war or terrorist acts and the governmental or military response thereto, cyber-attacks adversely affecting our operations, other geological, operating and economic considerations and declining prices and market conditions, including reduced oil and gas prices and supply or demand for maintenance, repair and operating products, equipment and service, decreases in oil and natural gas prices, decreases in oil and natural gas industry expenditure levels, which may result from decreased oil and natural gas prices or other factors, economic risks related to the impact of COVID-19, our ability to manage changes and the continued health or availability of management personnel, and our ability to obtain financing on favorable terms or amend our credit facilities as needed. This Report identifies other factors that could cause such differences. We cannot assure that these are all of the factors that could cause actual results to vary materially from the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in "Risk Factors", included in this Report and in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 13, 2020. We assume no obligation and do not intend to update these forward-looking statements. Unless the context otherwise requires, references in this Report to the "Company", "DXP", "we" or "our" shall mean DXP Enterprises, Inc., a Texas corporation, together with its subsidiaries.

CURRENT MARKET CONDITIONS AND OUTLOOK

During the ~~first quarter of~~six months ended June 30, 2020, the widely publicized and discussed coronavirus (COVID-19) outbreak rapidly spread across the world, driving a sharp erosion in demand ~~destruction~~ for crude oil and other products and services, as whole economies ordered curtailed activity. In response to declining demand for crude oil, members of the Organization of the Petroleum Exporting Countries and other producing countries (OPEC+), including Russia, met in early March to discuss additional production cuts to help stabilize prices. The group failed to reach an agreement, and production was instead increased into the already oversupplied market, decimating oil prices and rapidly filling worldwide oil storage facilities. OPEC+ eventually reached an agreement in April 2020 to reduce production, which had a muted effect on oil prices due to the belief that the cuts were significantly less than the demand ~~destructions~~destruction caused by COVID-19. As a result, companies across the industry responded with severe capital spending budget cuts, cost cuts, personnel layoffs, facility closures and bankruptcy filings. The North American rig count has declined from ~~over 1,200~~1,079 active rigs in ~~March~~July of 2019 to only ~~435~~296 as of ~~May 1,~~July 2020.

We have taken a number of mitigation efforts and proactive steps in response. We moved forward with our plans to increase our ABL revolver facility from $85 Million to $135 Million. In addition, we reduced certain discretionary ~~expenditures;~~expenditures and suspended the Company’s matching contributions to retirement plans. We may take additional mitigation actions in the future such as raising additional financing or furloughs. Some of these measures may have an adverse impact on our businesses.

Throughout the COVID-19 pandemic crisis, we have continued to operate our business despite the challenges that arise from closing offices and operating our branch locations. Our use of technology and third party conferencing platforms have enabled our office employees to work from home, performing their job functions with little to no loss of productivity. We required our employees to work from home as a result of governmental isolation orders and, in many cases, in advance of those orders for the health and safety of our employees. For the most part, our warehouses and regional distribution centers have remained open. Under various isolation orders by national, state, provincial and local governments, we have been exempted as an “essential” business as the products we sell are necessary for the maintenance and functioning of the energy infrastructure and other industries. We have taken measures to safeguard the health and welfare of our employees, including social distancing measures while at work, certain screening, providing personal protection equipment such as gloves, face masks and hand sanitizer and sterilizing cleaning services at Company facilities. As various governmental isolation orders are lifted or phased out, we are reviewing our operational plans to continue operating our business while addressing the health and safety of our employees and those with whom our business comes into contact.

As a distribution business, we have also closely monitored the ability of our suppliers and transportation providers to continue the functioning of our supply chain. We have not experienced significant delays by transportation providers or significant delays in our supply chains. Our inventory position for most products has allowed us to continue supply to most customers with little interruption. In those instances where there is interruption, we are working with our customers to discuss the impact of the COVID-19 delay. We continue to monitor the situation and have ongoing dialogue with our vendors and customers regarding the status of impacted orders.

Management expects industry activity levels and spending by customers to decrease throughout the remainder of 2020 as oil supplies continue to increase and demand destruction from COVID-19 remains. A prolonged contraction of activity related to oil and gas and a long lasting economic impact from COVID-19 may have a further ~~adverse~~adversely impact on our results and the carrying value of long-lived assets, inventory and related business segment goodwill. DXP remains committed to streamlining operations and improving organizational efficiencies while continuing to focus on delivering the products and services that remain in the Company’s backlog. We believe this strategy will further advance the Company’s competitive position, regardless of the market environment.

RESULTS OF OPERATIONS

(in thousands, except percentages and per share data)

DXP is organized into three business segments: Service Centers ("SC"), Supply Chain Services ("SCS") and Innovative Pumping Solutions ("IPS"). The Service Centers are engaged in providing maintenance, repair and operating ("MRO") products, equipment and integrated services, including technical expertise and logistics capabilities, to industrial customers with the ability to provide same day delivery. The Service Centers provide a wide range of MRO products and services in the rotating equipment, bearing, power transmission, hose, fluid power, metal working, industrial supply and safety product and service categories. The SCS segment provides a wide range of MRO products and manages all or part of our customer's supply chain function, and inventory management. The IPS segment fabricates and assembles integrated pump system packages custom made to customer specifications, remanufactures pumps and manufactures branded private label pumps. Over 90% of DXP's revenues represent sales of products.


	Three Months Ended June 30,
	2020		%		2019		%
Sales	$	251,401	100.0	%	$	333,318	100.0	%
Cost of sales	181,705		72.3	%	241,331		72.4	%
Gross profit	$	69,696	27.7	%	$	91,987	27.6	%
Selling, general and administrative expenses	62,943		25.0	%	69,140		20.7	%
Income from operations	$	6,753	2.7	%	$	22,847	6.9	%
Other (income) expense, net	133		0.1	%	185		0.1	%
Interest expense	3,930		1.6	%	4,885		1.5	%
Income before income taxes	$	2,690	1.1	%	$	17,777	5.3	%
Provision for income taxes (benefit)	610		0.2	%	4,427		1.3	%
Net income	$	2,080	0.8	%	$	13,350	4.0	%
Net (loss) income attributable to noncontrolling interest	(62)		—		(109)		—
Net income attributable to DXP Enterprises, Inc.	$	2,142	0.9	%	$	13,459	4.0	%
Per share amounts attributable to DXP Enterprises, Inc.
Basic earnings per share	0.12				$	0.76
Diluted earnings per share	0.12				$	0.73

Three Months Ended March 31,
2020 % 2019 %
Sales $ 300,983
100.0 % $ 311,225
100.0 %
Cost of sales 216,998
72.1 % 227,025
72.9 %
Gross profit $ 83,985
27.9 % $ 84,200
27.1 %
Selling, general and administrative expenses 73,070
24.3 % 69,384
22.3 %
Income from operations $ 10,915
3.6 % $ 14,816
4.8 %
Other (income) expense, net (834 ) (0.3 )% (33 ) — %
Interest expense 4,377
1.5 % 5,040
1.6 %
Income before income taxes $ 7,372
2.4 % $ 9,809
3.2 %
Provision for income taxes (benefit) 1,724
0.6 % 2,622
0.8 %
Net income $ 5,648
1.9 % $ 7,187
2.4 %
Net (loss) income attributable to noncontrolling interest (62 ) —
(104 ) —
Net income attributable to DXP Enterprises, Inc. $ 5,710
1.9 % $ 7,291
2.4 %
Per share amounts attributable to DXP Enterprises, Inc.
Basic earnings per share 0.32
$ 0.41

Diluted earnings per share 0.31
$ 0.40

Three Months Ended ~~March 31,~~June 30, 2020 compared to Three Months Ended ~~March 31,~~June 30, 2019

SALES. Sales for the three months ended ~~March 31,~~June 30, 2020 decreased ~~$10.2~~$81.9 million, or ~~3.3%~~24.6%, to approximately ~~$301.0~~$251.4 million from ~~$311.2~~$333.3 million for the prior year's corresponding period. Sales from businesses acquired during the ~~first quarter of 2020~~year accounted for ~~$5.2 million.~~$4.5 million of the sales for the three months ended June 30, 2020. This overall sales decrease is the result of a decrease in sales in our SC, IPS SC and SCS segments of ~~$4.7~~$46.1 million,~~$3.6~~ $20.5 million and ~~$1.9~~$15.2 million, respectively. The fluctuations in sales is further explained in our business segment discussions below.


	Three Months Ended June 30,
	2020		2019		Change		Change%
Sales by Business Segment	(in thousands, except change%)
Service Centers	$	153,848	$	199,978	$	(46,130)	(23.1)	%
Innovative Pumping Solutions	60,479		81,028		(20,549)		(25.4)	%
Supply Chain Services	37,074		52,312		(15,238)		(29.1)	%
Total DXP Sales	$	251,401	$	333,318	$	(81,917)	(24.6)	%

Three Months Ended March 31,
2020 2019 Change Change%
Sales by Business Segment (in thousands, except change%)
Service Centers $ 182,585
$ 186,179
$ (3,594 ) (1.9 )%
Innovative Pumping Solutions 70,021
74,723
(4,702 ) (6.3 )%
Supply Chain Services 48,377
50,323
(1,946 ) (3.9 )%
Total DXP Sales $ 300,983
$ 311,225
$ (10,242 ) (3.3 )%

Service Centers segment. Sales for the Service Centers segment decreased by approximately ~~$3.6~~$46.1 million, or ~~1.9%~~23.1% for the three months ended ~~March 31,~~June 30, 2020 compared to the prior year's corresponding period. Excluding ~~$5.2~~$4.5 million of ~~first~~second quarter 2020 Service Centers segment sales from businesses acquired, Service Centers segment sales for the ~~first~~second quarter in 2020 decreased ~~$8.8~~$50.6 million, or ~~4.7%~~25.3% from the prior year's corresponding period. This sales decrease is primarily the result of decreased sales of metal working, safety supply products and bearings to customers engaged in the OEM oil and gas markets in connection with decreased capital spending by oil and gas producers as well as the negative economic impacts of the COVID-19 pandemic. ~~If the U.S. crude oil production remain at levels experienced during the latter part of the quarter,~~We expect that this level of sales to the oil and gas industry will likely continue to ~~decline.~~decline if U.S. crude oil production remains at levels experienced during the quarter. With a prolonged economic shutdown related to COVID-19, we will likely experience a further decline in overall segment sales.

Innovative Pumping Solutions segment. Sales for the IPS segment decreased by ~~$4.7~~$20.5 million, or ~~6.3%~~25.4% for the three months ended ~~March 31,~~June 30, 2020 compared to the prior year's corresponding period. This decrease was primarily the result of a decrease in the capital spending by oil and gas producers and related businesses stemming from a decrease in U.S. crude oil production due to low crude prices and the negative economic impacts of COVID-19. This level of IPS sales will likely continue to decline during the remainder of 2020 if the U.S. crude oil production remains at levels experienced during the first six months of 2020.

Supply Chain Services segment. Sales for the SCS segment decreased by $15.2 million, or 29.1%, for the three months ended June 30, 2020, compared to the prior year's corresponding period. The decline in sales is primarily related to decreased sales to customers in the aerospace and oil and gas industries due to the economic impacts of the COVID-19 pandemic.

GROSS PROFIT. Gross profit as a percentage of sales for the three months ended June 30, 2020 increased by approximately 13 basis points from the prior year's corresponding period. Excluding the impact of the businesses acquired, gross profit as a percentage of sales increased by approximately 15 basis points. The increase in the gross profit percentage excluding the businesses acquired is primarily the result of an approximate 292 basis point increase in the gross profit percentage in our SCS segment, partially offset by a 53 basis point decrease in the gross profit percentage in our SC segment and a 5 basis point decrease in the gross profit percentage in our IPS segment.

Innovative Pumping Solutions segment. As a percentage of sales, the second quarter gross profit percentage for the IPS segment increased approximately 5 basis points from the prior year's corresponding period primarily as a result of an increase in utilization and capacity within IPS' engineered-to-order business and an overall improvement in the pricing environment. Additionally, gross profit margins for individual orders have continued to improve because of the increase in sales of built-to-order customer specific products. Operating income for the IPS segment decreased $3.5 million or 28.8%, during the second quarter of 2020 compared to the prior year’s corresponding period. The decrease in operating income is primarily the result of the above-mentioned decrease in sales.

Service Centers segment. As a percentage of sales, the second quarter gross profit percentage for the Service Centers decreased approximately 59 basis points and decreased approximately 53 basis points, adjusting for the businesses acquired, from the prior year's corresponding period. This was primarily as a result of sales mix and price increases from vendors. Operating income for the Service Centers segment decreased $9.6 million, or 41.2%, during the second quarter of 2020 compared to the prior year’s corresponding period. . The decrease in operating income is primarily the result of the decline in sales due to the items discussed above.

Supply Chain Services segment. Gross profit as a percentage of sales for the SCS segment increased approximately 292 basis points, compared to the prior year's corresponding period. This was primarily as a result of costs associated with new customer implementation in 2019 with no comparable activity in 2020. Operating income for the second quarter of 2020 decreased $0.4 million compared to the prior year's corresponding period mainly due to the above- mentioned decrease in sales.

SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). Selling, general and administrative expense for the three months ended June 30, 2020 decreased by approximately $6.2 million, or 9.0%, to $62.9 million from $69.1 million for the prior year's corresponding period. Selling, general and administrative expense from businesses acquired accounted for $1.2 million. Excluding expenses from businesses acquired, SG&A for the quarter decreased by $7.4 million, or 10.7%. The overall decrease in SG&A is primarily the result of decreased payroll, incentive compensation and related taxes and 401(k) expenses as a result of decreased business activity and cost reduction actions associated with COVID-19 and depressed demand in oil and gas markets. Adjusting for the businesses acquired, the second quarter 2020 expense decreased 428 basis points to 25.0% from 20.7% for the prior year's corresponding period primarily as a result of the fixed cost leverage nature of SG&A.

OPERATING INCOME. Operating income for the second quarter of 2020 decreased by $16.1 million to $6.8 million, from $22.8 million in the prior year's corresponding period. This decrease in operating income is primarily related to the above mentioned decrease in sales discussed above.

INTEREST EXPENSE. Interest expense for the second quarter of 2020 decreased $1.0 million compared with the prior year's corresponding period due to lower LIBOR rates and a reduction in principal balance.

INCOME TAXES. Our effective tax rate from continuing operations was a tax expense of 22.9% for the three months ended June 30, 2020 compared to a tax expense of 24.9% for the three months ended June 30, 2019. Compared to the U.S. statutory rate for the three months ended June 30, 2020, the effective tax rate was increased by state taxes, foreign taxes, and nondeductible expenses. The effective tax rate was decreased by research and development tax credits and other tax credits.

Compared to the U.S. statutory rate for the three months ended June 30, 2019, the effective tax rate was increased by state taxes, foreign taxes and nondeductible expenses. The effective tax rate was decreased by research and development tax credits and other tax credits.


	Six Months Ended June 30,
	2020		%		2019		%
Sales	$	552,384	100.0	%	$	644,543	100.0	%
Cost of sales	398,703		72.2	%	468,356		72.7	%
Gross profit	$	153,681	27.8	%	$	176,187	27.3	%
Selling, general and administrative expenses	136,013		24.6	%	138,524		21.5	%
Income from operations	$	17,668	3.2	%	$	37,663	5.8	%
Other (income) expense, net	(701)		(0.1)	%	152		—	%
Interest expense	8,307		1.5	%	9,925		1.5	%
Income before income taxes	$	10,062	1.8	%	$	27,586	4.3	%
Provision for income taxes (benefit)	2,334		0.4	%	7,049		1.1	%
Net income	$	7,728	1.4	%	$	20,537	3.2	%
Net loss attributable to noncontrolling interest	(124)		—		(213)		—
Net income attributable to DXP Enterprises, Inc.	$	7,852	1.4	%	$	20,750	3.2	%
Per share amounts attributable to DXP Enterprises, Inc.
Basic earnings per share	$	0.44			$	1.18
Diluted earnings per share	$	0.42			$	1.13

Six Months Ended June 30, 2020 compared to Six Months Ended June 30, 2019

SALES. Sales for the six months ended June 30, 2020 decreased $92.2 million, or 14.3%, to approximately $552.4 million from $644.5 million for the prior year's corresponding period. This sales decrease is the result of a decrease in sales in our SC, IPS and SCS segments of $49.7 million, $25.3 million, and $17.2 million, respectively. The fluctuations in sales are further explained in our business segment discussions below.


	Six Months Ended June 30,
	2020		2019		Change		Change%
Sales by Business Segment	(in thousands, except change%)
Service Centers	336,433		386,157		$	(49,724)	(12.9)	%
Innovative Pumping Solutions	130,500		155,751		(25,251)		(16.2)	%
Supply Chain Services	85,451		102,635		(17,184)		(16.7)	%
Total DXP Sales	$	552,384	$	644,543	$	(92,159)	(14.3)	%

Service Centers segment. Sales for the Service Centers segment decreased by $49.7 million, or 12.9% for the six months ended June 30, 2020 compared to the prior year's corresponding period. Excluding $9.7 million of Service Center segment sales for the six months ended June 30, 2020 from businesses acquired, Service Centers segment sales decreased $59.5 million, or 15.4% from the prior year's corresponding period. This sales decrease is primarily the result of decreased sales of metal working, safety supply products and bearings to customers engaged in the OEM oil and gas markets in connection with decreased capital spending by oil and gas producers as well as the negative economic impacts of the COVID-19 pandemic. We expect that this level of sales to the oil and gas industry will likely continue to decline if U.S. crude oil production remains at levels experienced during the first six months of 2020. With a prolonged economic shutdown related to COVID-19, we will likely experience a further decline in overall segment sales.

Supply Chain Services segment. Sales for the SCS segment decreased by $17.2 million, or 16.7%, for the six months ended June 30, 2020, compared to the prior year's corresponding period. The decline in sales is primarily related to decreased sales to customers in the aerospace and oil and gas industries due to the economic impacts of the COVID-19 pandemic.

Innovative Pumping Solutions segment. Sales for the IPS segment decreased by $25.3 million, or 16.2% for the six months ended June 30, 2020 compared to the prior year's corresponding period. This decrease was primarily the result of a decrease in the capital spending by oil and gas producers and related businesses stemming from a decrease in U.S. crude oil production due to low crude prices and the economic impacts of COVID-19. This level of IPS sales will likely continue to decline during the remainder of 2020 if ~~the~~ U.S. crude oil production remains at levels experienced during the first ~~three~~six months of 2020.

~~Supply Chain Services segment.~~ Sales for the SCS segment decreased by $1.9 million, or 3.9%, for the three months ended March 31, 2020, compared to the prior year's corresponding period. The decline in sales are primarily related to decreased sales to customers in the medical device, aerospace, oil and gas and food and beverage industries due to the economic impacts of the COVID-19 pandemic.

GROSS PROFIT. Gross profit as a percentage of sales for the ~~three~~six months ended ~~March 31,~~June 30, 2020 increased by approximately 8549 basis points from the prior year's corresponding period. Excluding the impact of the ~~business~~businesses acquired, gross profit as a percentage of sales increased by approximately 9053 basis points. The increase in the gross profit percentage ~~excluding the businesses acquired~~ is primarily the result of an approximate ~~435~~208 basis point increase in the gross profit percentage in our IPS segment and 15143 basis point increase in the gross profit percentage in our SCS segment, partially offset by a 2735 basis point decrease in the gross profit percentage in our SC ~~segment.~~segment excluding businesses acquired during the six months ended June 30, 2020.

Innovative Pumping Solutions segment. As a percentage of sales, the ~~first quarter~~six months ended June 30, 2020 gross profit percentage for the IPS segment increased approximately ~~435~~208 basis points from the prior year's corresponding period primarily as a result of an increase in utilization and capacity within IPS' engineered-to-order business and an overall improvement in the pricing environment .driven by an increase in capital spending by oil and gas producers. Additionally, gross profit margins for individual orders have continued to improve because of the increase in sales of built to order customer specific products. Operating income for the IPS segment increased ~~$3.6~~$0.2 million or ~~53.4%~~0.9%, primarily as a result of the ~~above~~below mentioned ~~increase~~decrease in ~~gross profit.~~SG&A.

Service Centers segment. As a percentage of sales, the ~~first quarter~~six months ended June 30, 2020 gross profit percentage for the Service Centers decreased approximately 3844 basis points ~~and decreased approximately 27 basis points, adjusting for the businesses acquired,~~ from the prior year's corresponding period. This was primarily as a result of sales mix and price increases from vendors. Operating income for the Service Centers segment decreased ~~$2.1~~$11.6 million, or ~~10.8%~~27.5%. The decrease in operating income is primarily the result of ~~the~~a decline in ~~sales due to the items discussed above.~~sales.

Supply Chain Services segment. Gross profit as a percentage of sales increased approximately 15143 basis points, compared to the prior year's corresponding period. This was primarily as a result of costs associated with new customer ~~implementation~~site implementations which are incurred prior to sales in the comparable 2019 ~~with no comparable activity in 2020.~~period. Operating income for the ~~first quarter~~six month period of 2020 decreased ~~$0.3~~$0.8 million compared to the prior year's corresponding period mainly due to ~~the above mentioned~~a decrease in ~~sales.~~SG&A expense of $1.8 million primarily related to payroll and incentive compensation.

SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). Selling, general and administrative expense for the ~~three~~six months ended ~~March 31,~~June 30, 2020 ~~increased~~decreased by approximately ~~$3.7~~$2.5 million, or ~~5.3%~~1.8%, to ~~$73.1~~$136.0 million from ~~$69.4~~$138.5 million for the prior year's corresponding period. Selling, general and administrative expense from businesses acquired accounted for ~~$1.5 million of the first quarter increase.~~$2.6 million. Excluding expenses from businesses acquired, SG&A for the ~~quarter increased~~six months ended June 30, 2020 decreased by ~~$2.2~~$5.1 million, or ~~3.2%~~3.7%. The overall ~~increase~~decrease in SG&A is the result of ~~increased~~decreased payroll, incentive compensation and related taxes and 401(k) ~~expenses. Adjusting~~expenses as a result of decreased business activity and cost reduction actions associated with COVID-19 and depressed demand in oil and gas markets. The overall decrease adjusting for the businesses acquired, ~~the first quarter 2020 expense~~ increased ~~192~~309 basis points to ~~24.2%~~24.6% from ~~22.3%~~21.5% for the prior year's corresponding period primarily as a result of the fixed cost leverage nature of SG&A.

OPERATING INCOME. Operating income for the ~~first quarter of~~six months ended June 30, 2020 decreased by ~~$3.9~~$20.0 million, or 53.1%, to ~~$10.9~~$17.7 million, from ~~$14.8~~$37.7 million in the prior year's corresponding period. This decrease in operating income is primarily related to the ~~above mentioned increase~~decrease in ~~selling, general and administrative expense~~sales discussed above.

INTEREST EXPENSE. Interest expense for the ~~first quarter of~~six months ended June 30, 2020 decreased ~~$0.7~~$1.6 million compared with the prior year's corresponding period due to lower LIBOR ~~rates.~~rates and a reduction in principal balance.

INCOME TAXES. Our effective tax rate from continuing operations was a tax expense of ~~23.3%~~23.2% for the ~~three~~six months ended ~~March 31,~~June 30, 2020 compared to a tax expense of ~~26.7%~~25.6% for the ~~three~~six months ended ~~March 31,~~June 30, 2019. Compared to the U.S. statutory rate for the ~~three~~six months ended ~~March 31,~~June 30, 2020, the effective tax rate was increased by state taxes, foreign taxes and nondeductible. The effective tax rate decreased primarily due to research and development tax credits and other tax credits.

Compared to the U.S. statutory rate for the six months ended June 30, 2019, the effective tax rate was increased by state taxes, foreign taxes, and nondeductible expenses. The effective tax rate was decreased by research and development tax credits and other tax credits.

~~Compared to the U.S. statutory rate for the~~ ~~three months ended March 31, 2019, the effective tax rate was increased by state taxes, foreign taxes and nondeductible expenses. The effective tax rate was decreased by research and development tax credits and other tax credits.~~

LIQUIDITY AND CAPITAL RESOURCES

General Overview

As of~~March 31,~~June 30, 2020, we had cash and cash equivalents of ~~$32.9~~$78.8 million and bank and other borrowings of ~~$237.8~~$222.6 million. We have a $135 million Asset-Based loan facility that is due to mature in August 2022, under which we had no ~~borrowing~~borrowings outstanding as of ~~March 31,~~June 30, 2020.

Our primary source of capital is cash flow from operations, supplemented as necessary by bank borrowings or other sources of financing. As a distributor of MRO products and services and fabricator of custom pumps and packages, working capital can fluctuate as a result of changes in inventory levels, accounts receivable and costs in excess of billings for project work. 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 and to service our debt.

The following table summarizes our net cash flows used in operating activities, net cash used in investing activities and net cash used in financing activities for the periods presented (in thousands):


	Six Months Ended June 30,
	2020		2019
Net Cash Provided by (Used in):
Operating Activities	$	61,764	$	(3,460)
Investing Activities	(19,163)		(8,550)
Financing Activities	(17,133)		(3,267)
Effect of Foreign Currency	(1,025)		311
Net Change in Cash	$	24,443	$	(14,966)

Three Months Ended March 31,
2020 2019
Net Cash Provided by (Used in):
Operating Activities $ (1,612 ) $ (5,310 )
Investing Activities (17,388 ) (2,283 )
Financing Activities (742 ) (2,310 )
Effect of Foreign Currency (1,730 ) 112
Net Change in Cash $ (21,472 ) $ (9,791 )

Operating Activities

The Company ~~used $1.6~~provided $61.8 million of cash in operating activities during the ~~three~~six months ended ~~March 31,~~June 30, 2020 compared to using ~~$5.3~~$3.5 million of cash during the prior year's corresponding period. The ~~$3.7~~$65.2 million ~~decrease~~increase in the amount of cash ~~used~~provided between the two periods was primarily driven by the ~~timing~~collections of ~~payments~~receivables associated with trade accounts ~~payable~~receivables and decreased inventory purchases.

Investing Activities

For the ~~three~~six months ended ~~March 31,~~June 30, 2020, net cash used in investing activities was ~~$17.4~~$19.2 million compared to ~~$2.3~~$8.6 million in the corresponding period in June 30, 2019. This ~~$15.2~~$10.6 million increase was primarily driven by the purchase of PSI and Turbo in the first quarter of 2020. For the ~~three~~six months ended ~~March 31,~~June 30, 2020, purchases of property and equipment ~~was~~decreased to approximately ~~$3.2 million.~~$5.1 million compared to $8.6 million in 2019 primarily due to leasehold improvements in 2019 with no comparable activity in 2020.

Financing Activities

For the ~~three~~six months ended ~~March 31,~~June 30, 2020, net cash used in financing activities was ~~$0.7~~$17.1 million, compared to net cash used in financing activities of ~~$2.3~~$3.3 million for the corresponding period in June 30, 2019. The activity in the period was primarily attributed to ~~the payment~~Term Loan B payments of ~~contingent consideration~~$15.6 million in 2020 compared to $1.3 million in 2019 ~~of $1.4~~and $1.1 million associated with common stock sold in public markets in 2020.

On May 11, 2020, the ~~purchase~~Company entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with BMO Capital Markets Corp. (the “Distribution Agent”) pursuant to which the Company may offer and sell shares of ~~ASI.~~the Company’s common stock, par value $0.01 per share, having an aggregate offering price of up to $37,500,000 from time to time through the Distribution Agent. Sales, if any, of the Company’s common stock pursuant to the Equity Distribution Agreement will be made in “at the market offerings” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended. During the three months ended June 30, 2020, the Company issued and sold 46,000 shares of common stock under the Equity Distribution Agreement, with net proceeds totaling approximately $1.1 million, after deducting the Distribution Agent’s commission of approximately $26 thousand.

On March 17, 2020, the Company entered into an Increase Agreement (the "Increase Agreement") that provided for a $135 million asset-backed revolving line of credit (the "ABL Revolver"), a $50 million increase from the $85.0 million available under the original revolver. During the ~~three~~six months ended ~~March 31,~~June 30, 2020, the amount available to be borrowed under our credit facility increased to ~~$131.6~~$131.0 million compared to $81.6 million at December 31, 2019, primarily as a result of the above mentioned Increase Agreement offset by outstanding letters of credit.

We believe this is adequate funding to support working capital needs within the business.

Funding Commitments

We intend to pursue additional acquisition targets, but the timing, size or success of any acquisition effort and the related potential capital commitments cannot be determined with certainty. We continue to expect to fund future acquisitions primarily with cash flows from operations and borrowings, including the undrawn portion of the credit facility or new debt issuances, but may also issue additional equity either directly or in connection with acquisitions. There can be no assurance that additional financing for acquisitions will be available at terms acceptable to us.

We believe our cash generated from operations will meet our normal working capital needs during the next twelve months. However, we may require additional debt outside of our credit facilities or equity financing to fund potential acquisitions. Such additional financings may include additional bank debt or the public or private sale of debt or equity securities. In connection with any such financing, we may issue securities that substantially dilute the interests of our shareholders.

DISCUSSION OF SIGNIFICANT ACCOUNTING AND BUSINESS POLICIES

Critical accounting and business policies are those that are both most important to the portrayal of a company's financial position and results of operations, and require management's subjective or complex judgments. These policies have been discussed with the Audit Committee of the Board of Directors of DXP.

The Company's condensed financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). The accompanying Condensed Consolidated Financial Statements include the accounts of the Company, its wholly owned subsidiaries and its variable interest entity ("VIE"). The accompanying unaudited Condensed Consolidated Financial Statements have been prepared on substantially the same basis as our annual Consolidated Financial Statements and should be read in conjunction with our annual report on Form 10-K for the year ended December 31, 2019. For a more complete discussion of our significant accounting policies and business practices, refer to the consolidated annual report on Form 10-K filed with the Securities and Exchange Commission on March 13, 2020. The results of operations for the ~~three~~six months ended ~~March 31,~~June 30, 2020 are not necessarily indicative of results expected for the full fiscal year.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 3 - Recent Accounting Pronouncements to the Condensed Consolidated Financial Statements for information regarding recent accounting pronouncements.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

For quantitative and qualitative disclosures about market risk, see Item 7A, 'Quantitative and Qualitative Disclosures About Market Risk,' of our Annual Report on Form 10-K for the year ended December 31, 2019. Our exposures to market risk have not changed materially since December 31, 2019.

ITEM 4: CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Securities Exchange Act of 1934 is reported, processed, and summarized within the time periods specified in the SEC’s rules and forms. As of ~~March 31,~~June 30, 2020, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective, as of ~~March 31,~~June 30, 2020.

Changes in Internal Control over Financial Reporting

There are no changes in our internal control over financial reporting that occurred during ~~three~~the six months ended ~~March 31,~~June 30, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations of Internal Controls

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, the Company is a party to various legal proceedings arising in the ordinary course of business. While DXP is unable to predict the outcome of these lawsuits, it believes that the ultimate resolution will not have, either individually or in the aggregate, a material adverse effect on DXP's consolidated financial position, cash flows, or results of operations.

ITEM 1A. RISK FACTORS.

TheCOVID-19 pandemic could 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.

The COVID-19 pandemic is creating extensive disruptions to the global economy and to the lives of individuals throughout the world. During the first few months on 2020, COVID-19 has spread into several regions globally, resulting in certain supply chain disruptions, ~~volatilities~~volatility in the stock market, lower oil prices, and a lockdown in international travel, all of which could adversely impact the global economy and potentially decrease demand from our customers. While the scope, duration, and full effects of COVID-19 are rapidly evolving and not fully known, the pandemic and related efforts to contain it have disrupted global economic activity and increased economic and market uncertainty. Further, a COVID-19 outbreak at one of our vendors’ or customers’ facilities could adversely impact or disrupt our operations. These types of events could negatively impact our customers’ spending in the impacted regions or, depending upon the severity, globally, which could adversely impact our business, reputation, results of operations or financial conditions. If these effects continue for a prolonged period or result in sustained economic stress or recession, many of the risk factors identified in our Form 10-K could be exacerbated and such effects could have a material adverse impact on us in a number of ways.

Because there have been no comparable recent global pandemics that resulted in similar global impact, we do not know the full extent of COVID-19’s effects on our business, operations, or the global economy as a whole. Any future development will be highly uncertain and cannot be predicted, including the scope and duration of the pandemic and any actions taken by governmental authorities and other third parties in response to the pandemic. While we do not know the full extent of the impact on our business, our operations or the global economy as a whole, the effects could have a material adverse effect on our business, financial condition, and results of operations. Moreover, many risk factors set forth in the Form 10-K should be interpreted as heightened risks as a result of the impact of the COVID-19 pandemic.

We could be adversely impacted by the unexpected loss of the services of our executive management team and other key employees.

Our success depends in large part on the performance of our executive management team and other key personnel, as well as on our ability to attract, motivate and retain highly qualified senior and middle management and other skilled employees. Competition for qualified employees is intense and the process of locating qualified key personnel may be lengthy and expensive. If any of our executive management team contract COVID-19, we may lose their services for an extended period of time, which would likely have a negative impact on our business and operations. If we experience widespread cases of COVID-19 among ~~the~~our employees, it would place more pressure on the remaining employees to perform all functions across the organization while maintaining their health, may require us to take remediation measures, and could impair our ability to conduct business. We may not be successful in retaining our key employees or finding adequate replacements for lost personnel.

We could be adversely impacted by sustained low oil prices, volatility in oil prices and downturns in the energy industry.

Sustained low oil prices or the failure of oil prices to rise in the future and the resulting downturns or lack of growth in the energy industry and ~~energy‑~~energy related business could adversely impact our results of operations and financial condition. The unprecedented sharp decline in crude oil prices since February 2020 has negatively impacted the oil and gas industry and is expected to cause further worsening conditions of energy companies, oilfield services companies, and related businesses. A significant portion of our revenue depends upon the level of capital and operating expenditures in the oil and natural gas industry, including capital expenditures in connection with the upstream, midstream, and downstream phases in the energy industry. Therefore, sustained low oil and natural gas prices or a continued decline of such prices could lead to a decrease in our customers’ capital and other expenditures and could adversely affect our revenues. Oil and gas pricing and the resultant economic conditions may not recover meaningfully in the near term.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

~~During the fiscal quarter ended March 31, 2020, we issued an aggregate~~Repurchases of ~~49,468 shares~~Common Stock

A summary of ~~the Company’s~~our purchases of DXP Enterprises, Inc. common stock ~~to certain employees~~during the second quarter of ~~PSI in a private placement pursuant to Section 4(a)(2) of the Securities Act of 1933,~~fiscal year 2020 is as ~~amended, for a total consideration of $2,000,000, as described above in~~ ~~Note 13 - Business Acquisitions~~.

follows:


		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

	Apr 1 - Apr 30	855	$	13.22	—	$	—
	May 1 - May 31	541	$	13.34	—	$	—
	Jun 1 - Jun 30	—	$	—	—	$	—
	Total	1,396	$	13.27	—	$	—

(1)	We withheld 1,396 shares to satisfy tax withholding obligation in connection with the vesting of employee equity awards.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

ITEM 4. MINE SAFETY DISCLOSURES.

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.



3.1			Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form on Form S-8, ~~(Reg. No. 333-61953),~~ filed with the Commission on August 20, ~~1998)~~1998. File No. :333-61953).



3.2			Bylaws, as amended on July 27, 2011 (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q, filed with the Commission on May 10, 2018.



10.1			~~Increase~~Equity Distribution Agreement, dated ~~as of March 17,~~May 11, 2020, by and between the Company and the Distribution Agent (incorporated by reference to Exhibit ~~10.1~~1.1 to the Company’s Current Report on Form 8-K, filed with the Commission on ~~March 19, 2020)~~May 12, 2020, File No.: 000-21513).

* 31.1			Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act, as amended.



* 31.2			Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act, as amended.



* 32.1			Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



* 32.2			Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



*101			~~Interactive Data Files~~ The following financial information from the Company’s Quarterly Report on Form 10 -Q for the quarter ended June 30, 2020, formatted in Inline eXtensible Business Reporting Language (iXBRL), (i) Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income, (ii) Unaudited Condensed Consolidated Balance Sheets, (iii) Unaudited Condensed Consolidated Statements of Cash Flows, (iv) Unaudited Condensed Consolidated Statements of Equity, and (v) Notes to Unaudited Condensed Consolidated Financial Statements.
*104			The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 formatted in Inline XBRL.

Exhibits designated by the symbol * are filed or furnished with this Quarterly Report on Form 10-Q. All exhibits not so designated are incorporated by reference to a prior filing with the Commission as indicated.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DXP ENTERPRISES, INC.

(Registrant)

By: /s/ Kent Yee

Kent Yee

Senior Vice President and Chief Financial Officer

(Duly Authorized Signatory and Principal Financial Officer)

Dated: ~~May 8,~~August 10, 2020



Texas						76-0509661
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)



Title of Each Class	Trading Symbol	Name of Exchange on which Registered
Common Stock par value $0.01	DXPE	NASDAQ Global Select Market



Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Contingent Liability for Accrued Consideration
	(in thousands)
Beginning balance at December 31, 2019	$	2,705
Acquisitions and settlements
Acquisitions	—
Settlements	—
Total remeasurement adjustments:
Changes in fair value recorded in other (income) expense, net	(496		)
*Ending Balance at March 31, 2020	$	2,208

The amount of total (gains) or losses for the quarter included in earnings or changes to net assets, attributable to changes in unrealized losses relating to liabilities still held at March 31, 2020.	$	(496	)

* Included in other current and long-term liabilities


Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Contingent Liability for Accrued Consideration
	(in thousands)
Beginning balance at December 31, 2019	$	2,705
Acquisitions and settlements
Acquisitions	—
Settlements	(2,000)
Total remeasurement adjustments:
Changes in fair value recorded in other (income) expense, net	(199)
*Ending Balance at June 30, 2020	$	506

The amount of total (gains) or losses for the quarter included in earnings or changes to net assets, attributable to changes in unrealized losses relating to liabilities still held at June 30, 2020.	$	(199)

* Included in other current liabilities


(in thousands, unaudited)	Fair value at June 30, 2020		Valuation Technique	Significant Unobservable Inputs
Contingent consideration: (ASI acquisition)	$	506	Discounted cash flow	Annualized EBITDA and probability of achievement



[X]	☒	]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended ~~March 31,~~June 30, 2020



[ ]	☐	]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF ~~1934.For~~1934. For the transition period from to


~~(713) 996-4700~~
(Registrant's telephone number, including area code)



	Three Months Ended March 31,
	2020			2019
Sales	$	300,983		$	311,225
Cost of sales	216,998			227,025
Gross profit	83,985			84,200
Selling, general and administrative expenses	73,070			69,384
Income from operations	10,915			14,816
Other income	(834		)	(33		)
Interest expense	4,377			5,040
Income before income taxes	7,372			9,809
Provision for income taxes	1,724			2,622
Net income	5,648			7,187
Net (loss) attributable to noncontrolling interest	(62		)	(104		)
Net income attributable to DXP Enterprises, Inc.	5,710			7,291
Preferred stock dividend	23			23
Net income attributable to common shareholders	$	5,687		$	7,268

Net income	$	5,648		$	7,187
Currency translation adjustments	(1,163		)	702
Comprehensive income	$	4,485		$	7,889

Earnings per share :
Basic	$	0.32		$	0.41
Diluted	$	0.31		$	0.40
Weighted average common shares outstanding :
Basic	17,713			17,566
Diluted	18,553			18,406



(in thousands, unaudited)	Fair value at March 31, 2020		Valuation Technique	Significant Unobservable Inputs
Contingent consideration: (ASI acquisition)	$	2,208	Discounted cash flow	Annualized EBITDA and probability of achievement


	June 30, 2020		December 31, 2019
Finished goods	$	129,397	$	122,510
Work in process	16,616		19,721
Obsolescence reserve	(14,185)		(12,867)
Inventories	$	131,828	$	129,364


	June 30, 2020		December 31, 2019
Costs incurred on uncompleted contracts	$	62,561	$	51,017
Estimated profits, thereon	12,632		10,771
Total	75,193		61,788
Less: billings to date	48,387		41,223
Net	$	26,806	$	20,565


	June 30, 2020						December 31, 2019
	Carrying Value ⁽¹⁾		Fair Value		Carrying Value ⁽¹⁾		Fair Value
ABL Revolver	$	—	$	—	$	—	$	—
Term Loan B	228,125		217,289		244,375		244,375
Total long-term debt	228,125		217,289		244,375		244,375
Less: current portion	(2,500)		(2,381)		(2,500)		(2,500)
Long-term debt less current maturities	$	225,625	$	214,908	$	241,875	$	241,875


											Three Months Ended June 30,
Three Months Ended March 31, 2020
											2020																												2019
	SC		IPS		SCS		Total				SC				IPS				SCS				Total				SC				IPS				SCS				Total
Product sales (recognized at a point in time)	$	169,795	$	—	$	44,152	$	213,947	Product sales (recognized at a point in time)		$	144,286			$	—			$	32,988			$	177,274			$	184,444			$	—			$	48,385			$	232,829
Inventory management services (recognized over contract life)	—		—		4,225		$	4,225	Inventory management services (recognized over contract life)		—				—				4,086				$	4,086			—				—				3,927				$	3,927
Staffing services (day-rate basis)	12,790		—		—		$	12,790	Staffing services (day-rate basis)		9,562				—				—				$	9,562			15,534				—				—				$	15,534
Customized pump production (recognized over time)	—		70,021		—		$	70,021	Customized pump production (recognized over time)		—				60,479				—				$	60,479			—				81,028				—				$	81,028
Total Revenue	$	182,585	$	70,021	$	48,377	$	300,983	Total Revenue		$	153,848			$	60,479			$	37,074			$	251,401			$	199,978			$	81,028			$	52,312			$	333,318
Income from operations(1)	$	16,926	$	10,428	$	3,755	$	31,109	$	13,664			$	8,565			$	3,353			$	25,582			$	23,230			$	12,028			$	3,784			$	39,042




Three Months Ended March 31, 2019
	SC		IPS		SCS		Total
Product sales (recognized at a point in time)	$	171,668	$	—	$	46,385	$	218,053
Inventory management services (recognized over contract life)	—		—		3,938		$	3,938
Staffing services (day-rate basis)	14,511		—		—		$	14,511
Customized pump production (recognized over time)	—		74,723		—		$	74,723
Total Revenue	$	186,179	$	74,723	$	50,323	$	311,225
Income from operations	$	18,980	$	6,799	$	4,086	$	29,865