UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form ~~10-Q~~10-Q/A

(Mark One)


[			☒			]			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended ~~June 30, 2020~~March 31, 2021


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

Commission file number 0-21513

DXP Enterprises, Inc.

(Exact name of registrant as specified in its charter)


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

5301 Hollister, Houston, Texas 77040

(Address of principal executive offices, including zip code)

(713) 996-4700


(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ] Smaller reporting company [☐] Emerging growth company [☐]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [☐] No [X]

Number of shares of registrant's Common Stock outstanding as of ~~July 31, 2020: 17,778,829~~April 30, 2021: 19,206,923 par value $0.01 per share.

EXPLANATORY NOTE

DXP Enterprises, Inc. (collectively with its subsidiaries, the “Company”) is filing this Amendment No. 1 on Form 10-Q/A (this “Form 10-Q/A” or this “report”) to amend its Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on May 10, 2021 (the “Original Report”). The Company is filing this Form 10-Q/A to correct the untimely clearing of unvouchered purchase order discrepancies arising from our three-way matching process and the recognition of true-up consideration in business combination accounting. The Company is restating its consolidated balance sheets as of December 31, 2020 and March 31, 2021, and condensed consolidated statements of operations and comprehensive income, cash flows, and equity for the quarters ended March 31, 2021 and 2020.

In addition, the Company's consolidated financial statements for the periods covered in the Original Report have also been restated to correct certain immaterial adjustments. These adjustments primarily reflect proper cut-off for direct ship sales to customers and credit card payments, adjustments for inventory obsolescence reserves. The impacts of the restatement on our Condensed Statements of Income and Balance Sheets are detailed in Note 4 to the Notes to the Consolidated Financial Statements.

The Company filed Amendment No. 1 on Form 10-K/A (“Form 10-K/A”) to amend its Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 18, 2021 (“2020 Form 10-K”). This Form 10-Q/A should be read in conjunction with the Form 10-K/A, as filed with the SEC on October 22, 2021. The historical periods presented in this Form 10-Q/A reflect adjustments to the information presented in the Company’s previously-filed Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, the Form 10-K and the Original Report.

The Company is also revising its disclosures in Part I, Item 2, “Management's Discussion and Analysis of Financial Condition and Results of Operations” to reflect corresponding changes and its disclosures in Part II, Item 4, “Controls and Procedures” to discuss the material weakness in internal controls that resulted in filing this Form 10-Q/A. This Form 10-Q/A includes new certifications from the Company’s Chief Executive Officer and Chief Financial Officer dated as of the date of the filing of this Form 10-Q/A, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.

Except as described above, no other information included in the Original Report is being amended or updated by this Amendment No. 1 on Form 10-Q/A and this Amendment No. 1 on Form 10-Q/A does not purport to reflect any information or events subsequent to the Original Report, nor does it modify or update any disclosures that may have been affected by events occurring subsequent to, the date of the filing of the Original Report.

DXP ENTERPRISES, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

DESCRIPTION


Item		Page
PART I: FINANCIAL INFORMATION
	ITEM 1. Financial Statements	34
	a) Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Restated)	34
	b) Unaudited Condensed Consolidated Balance Sheets (Restated)	45
	c) Unaudited Condensed Consolidated Statements of Cash Flows (Restated)	56
	d) Unaudited Condensed Consolidated Statements of Equity (Restated)	67
	e) Notes to Unaudited Condensed Consolidated Financial Statements (Restated)	7
	ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	1617
	ITEM 3. Quantitative and Qualitative Disclosures about Market Risk	2322
	ITEM 4. Controls and Procedures	2523

PART II: OTHER INFORMATION			2624
	ITEM 1. Legal Proceedings	2624
	ITEM 1A. Risk Factors	2624
	ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	2724
	ITEM 3. Default upon Senior Securities	2724
	ITEM 4. Mine Safety Disclosures	2724
	ITEM 5. Other Information	2724
	ITEM 6. Exhibits	2825
	Signatures	2926

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 March 31,
		Three Months Ended June 30,						Six Months Ended June 30,							2021	2020
		2020		2019		2020		2019			(Restated)		(Restated)
Sales	Sales	$	251,401	$	333,318	$	552,384	$	644,543	Sales	$	245,587	$	300,983
Cost of sales	Cost of sales	181,705		241,331		398,703		468,356		Cost of sales	173,957		217,869
Gross profit	Gross profit	69,696		91,987		153,681		176,187		Gross profit	71,630		83,114
Selling, general and administrative expenses	Selling, general and administrative expenses	62,943		69,140		136,013		138,524		Selling, general and administrative expenses	65,397		71,795
Income from operations	Income from operations	6,753		22,847		17,668		37,663		Income from operations	6,233		11,319
Other income	Other income	133		185		(701)		152		Other income	(430)		(834)
Interest expense	Interest expense	3,930		4,885		8,307		9,925		Interest expense	5,243		4,377
Income before income taxes	Income before income taxes	2,690		17,777		10,062		27,586		Income before income taxes	1,420		7,776
Provision for income taxes	Provision for income taxes	610		4,427		2,334		7,049		Provision for income taxes	1,261		1,786
Net income	Net income	2,080		13,350		7,728		20,537		Net income	159		5,990
Net (loss) attributable to noncontrolling interest		(62)		(109)		(124)		(213)
Net loss attributable to noncontrolling interest										Net loss attributable to noncontrolling interest	(212)		(62)
Net income attributable to DXP Enterprises, Inc.	Net income attributable to DXP Enterprises, Inc.	2,142		13,459		7,852		20,750		Net income attributable to DXP Enterprises, Inc.	371		6,052
Preferred stock dividend	Preferred stock dividend	22		22		45		45		Preferred stock dividend	23		23
Net income attributable to common shareholders	Net income attributable to common shareholders	$	2,120	$	13,437	$	7,807	$	20,705	Net income attributable to common shareholders	$	348	$	6,029

Net income	Net income	$	2,080	$	13,350	$	7,728	$	20,537	Net income	$	159	$	5,990
Currency translation adjustments	Currency translation adjustments	1,395		(139)		232		563		Currency translation adjustments	1,277		(1,163)
Comprehensive income	Comprehensive income	$	3,475	$	13,211	$	7,960	$	21,100	Comprehensive income	$	1,436	$	4,827

Earnings per share :
Earnings per share (Note 10) :										Earnings per share (Note 10) :
Basic	Basic	$	0.12	$	0.76	$	0.44	$	1.18	Basic	$	0.02	$	0.34
Diluted	Diluted	$	0.12	$	0.73	$	0.42	$	1.13	Diluted	$	0.02	$	0.32
Weighted average common shares outstanding :	Weighted average common shares outstanding :									Weighted average common shares outstanding :
Basic	Basic	17,735		17,596		17,719		17,581		Basic	19,186		17,713
Diluted	Diluted	18,575		18,436		18,559		18,421		Diluted	20,026		18,553

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

~~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



	March 31, 2021		December 31, 2020
	(Restated)		(Restated)
ASSETS
Current assets:
Cash	$	127,361	$	119,328
Restricted cash	91		91
Accounts Receivable, net of allowance of $8,441 and $8,628	169,632		166,941
Inventories	103,407		97,071
Costs and estimated profits in excess of billings	14,415		18,459
Prepaid expenses and other current assets	7,534		4,548
Federal income taxes receivable	3,234		2,987
Total current assets	425,674		409,425
Property and equipment, net	54,110		56,899
Goodwill	261,927		261,767
Other intangible assets, net	76,008		80,088
Operating lease ROU assets	59,949		55,188
Other long-term assets	4,332		4,764
Total assets	$	882,000	$	868,131
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt	$	3,300	$	3,300
Trade accounts payable	70,650		64,849
Accrued wages and benefits	19,179		20,621
Customer advances	3,967		3,688
Billings in excess of costs and estimated profits	5,950		4,061
Short-term operating lease liabilities	17,590		15,891
Other current liabilities	35,645		34,729
Total current liabilities	156,281		147,139
Long-term debt, net of unamortized debt issuance costs	316,741		317,139
Long-term operating lease liabilities	41,267		38,010
Other long-term liabilities	2,930		2,930
Deferred income taxes	2,369		1,777
Total long-term liabilities	363,307		359,856
Total liabilities	519,588		506,995
Commitments and contingencies (Note 11)	0		0
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; 19,200,923 and 19,208,067 outstanding	189		189
Additional paid-in capital	191,931		192,068
Retained earnings	186,426		186,078
Accumulated other comprehensive loss	(16,736)		(18,013)
Total DXP Enterprises, Inc. Equity	361,826		360,338
Noncontrolling interest	586		798
Total Equity	362,412		361,136
Total liabilities and Equity	$	882,000	$	868,131

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)


	Three Months Ended March 31,
	2021		2020
	(Restated)		(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income attributable to DXP Enterprises, Inc.	$	371	$	6,052
Less: net loss attributable to non-controlling interest	(212)		(62)
Net income	159		5,990
Reconciliation of net income to net cash provided (used in) by operating activities:
Depreciation	2,480		2,828
Amortization of intangible assets	4,146		3,197
Gain on sale of property and equipment	(246)		—
Provision for credit losses	(682)		28
Fair value adjustment on contingent consideration	—		13
Amortization of debt issuance costs	427		468
Stock compensation expense	380		904
Deferred income taxes	580		941
Changes in operating assets and liabilities:
Trade accounts receivable	(4,191)		(5,183)
Costs and estimated profits in excess of billings	4,052		(3,381)
Inventories	(6,310)		(849)
Prepaid expenses and other assets	(7,293)		(1,205)
Trade accounts payable and accrued expenses	9,934		3,599
Billings in excess of costs and estimated profits	1,884		(7,327)
Other long-term liabilities	3,257		(1,635)
Net cash provided by (used in) operating activities	$	8,577	$	(1,612)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(680)		(3,235)
Proceeds from the sale of property and equipment	1,297		—
Acquisition of business, net of cash acquired	—		(14,153)
Net cash provided by (used in) investing activities	$	617	$	(17,388)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal debt payments	(825)		(625)
Dividends paid	(23)		(23)
Payment for employee taxes withheld from stock awards	(517)		(94)
Net cash used in financing activities	$	(1,365)	$	(742)
Effect of foreign currency on cash	204		(1,730)
Net change in cash and restricted cash	8,033		(21,472)
Cash and restricted cash at beginning of period	119,419		54,326
Cash and restricted cash at end of period	$	127,452	$	32,854

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			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
Balance at December 31, 2019 (Restated)																		Balance at December 31, 2019 (Restated)	$	1	$	15	$	174	$	157,886	$	215,664	$	1,146	$	(19,954)	$	354,932
Preferred dividends paid	Preferred dividends paid	—		—		—		—		(22)		—		—		$	(22)	Preferred dividends paid	—		—		—		—		(23)		—		—		(23)
Compensation expense for restricted stock	Compensation expense for restricted stock	—		—		—		524		—		—		—		$	524	Compensation expense for restricted stock	—		—		—		904		—		—		—		904
Tax related items for share based awards	Tax related items for share based awards	—		—		—		(84)		—		—		—		$	(84)	Tax related items for share based awards	—		—		—		(94)		—		—		—		(94)
Issuance of shares of common stock																		Issuance of shares of common stock	—		—		1		1,999		—		—		—		2,000
Currency translation adjustment	Currency translation adjustment	—		—		—		—		—		—		(139)		$	(139)	Currency translation adjustment	—		—		—		—		—		—		(1,163)		(1,163)
Net income	Net income	—		—		—		—		13,459		(109)		—		$	13,350	Net income	—		—		—		—		6,052		(62)		—		5,990
Balance at June 30, 2019		$	1	$	15	$	174	$	157,091	$	190,440	$	1,193	$	(18,704)	$	330,210
Balance at March 31, 2020 (Restated)																		Balance at March 31, 2020 (Restated)	$	1	$	15	$	175	$	160,695	$	221,693	$	1,084	$	(21,117)	$	362,546


		Series A preferred stock		Series B preferred stock		Common stock		Paid-in capital		Retained earnings		Non controlling interest		Accum other comp loss		Total equity			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
Balance at December 31, 2020 (Restated)																		Balance at December 31, 2020 (Restated)	$	1	$	15	$	189	$	192,068	$	186,078	$	798	$	(18,013)	$	361,136
Preferred dividends paid	Preferred dividends paid	—		—		—		—		(45)		—		—		$	(45)	Preferred dividends paid	—		—		—		—		(23)		—		—		(23)
Compensation expense for restricted stock	Compensation expense for restricted stock	—		—		—		1,029		—		—		—		$	1,029	Compensation expense for restricted stock	—		—		—		380		—		—		—		380
Tax related items for share based awards	Tax related items for share based awards	—		—		—		(128)		—		—		—		$	(128)	Tax related items for share based awards	—		—		—		(517)		—		—		—		(517)
Currency translation adjustment	Currency translation adjustment	—		—		—		—		—		—		563		$	563	Currency translation adjustment	—		—		—		—		—		—		1,277		1,277
Net income	Net income	—		—		—		—		20,750		(213)		—		$	20,537	Net income	—		—		—		—		371		(212)		—		159
Balance at June 30, 2019		$	1	$	15	$	174	$	157,091	$	190,440	$	1,193	$	(18,704)	$	330,210
Balance at March 31, 2021 (Restated)																		Balance at March 31, 2021 (Restated)	$	1	$	15	$	189	$	191,931	$	186,426	$	586	$	(16,736)	$	362,412

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 — — — — (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~~a variety of end markets 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 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~~10-K/A for the year ended December 31, ~~2019.~~2020. For a more complete discussion of our significant accounting policies and business practices, refer to the consolidated Annual Report on Form ~~10-K~~10-K/A filed with the Securities and Exchange Commission on ~~March 13, 2020.~~October 22, 2021. The results of operations for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 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 ~~six~~three months ended ~~June 30,~~March 31, 2021 and March 31, 2020, ~~and June 30, 2019,~~ condensed consolidated balance sheets as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, condensed consolidated statements of cash flows for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and March 31, 2020, ~~and June 30, 2019,~~ and condensed consolidated statement of equity for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 and ~~June 30, 2019.~~March 31, 2020. 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 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

As previously reported, the Company restated its consolidated balance sheets as of December 31, 2020 and 2019, and consolidated statements of earnings, cash flows, and comprehensive income and retained earnings for the years ended December 31, 2020, 2019 and 2018. The restatement also affected periods prior to 2018. The impact of the restatement on such prior periods was reflected as a n adjustment to retained earnings as of January 1, 2018. In addition, the restatement impacts the first, second and third quarters of 2020 and the first quarter of 2021. The restated amounts for the comparable interim period in 2020 are presented below. The restatement corrects errors resulting from the failure to timely clear aged payables resulting from the Company's three-way match process discrepancies, the recognition of additional consideration related to a business combination, as well as certain additional adjustments that the Company has determined to be immaterial, both individually and in aggregate. Set forth below are the restatement adjustments included in the restatement of the previously issued financial statements for the year ended December 31, 2020, and the quarters ended March 31, 2020 and March 31, 2021, each of which is an “error” within the meaning of ASC Topic 250: Accounting Changes and Error Corrections.

The following tables presents the impact of the restatement adjustments described below on net income and comprehensive income for the quarter ended March 31, 2021 and 2020:


	For the Three Months Ended March 31, 2021						For the Three Months Ended March 31, 2020
	As previously reported						As previously reported
			Adjustments		As restated				Adjustments		As restated
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Sales	$	245,616	$	(29)	$	245,587	$	300,983	$	—	$	300,983
Cost of sales	174,007		(50)		173,957		216,998		871		217,869
Gross profit	71,609		21		71,630		83,985		(871)		83,114
Selling, general and administrative costs	65,397		—		65,397		73,070		(1,275)		71,795
Income before income taxes	1,399		21		1,420		7,372		404		7,776
Provision for income taxes	1,271		(10)		1,261		1,724		62		1,786
Net income	$	128	$	31	$	159	$	5,648	$	342	$	5,990

Basic earnings per share	$	0.02	$	—	$	0.02	$	0.32	$	0.02	$	0.34

Diluted earnings per share	$	0.02	$	—	$	0.02	$	0.31	$	0.01	$	0.32


	For the Three Months Ended March 31, 2021			For the Three Months Ended March 31, 2020
	As previously reported			As previously reported
		Adjustments	As restated		Adjustments	As restated
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Net income	128	31	159	5,648	342	5,990
Total comprehensive income	5,234	(3,798)	1,436	4,485	342	4,827

Adjustments to Net Sales and Related Adjustments to Cost of Products Sold

Unvouchered Purchase Orders The Company determined it had aged unvouchered purchase orders included in trade accounts payable.After lengthy investigation and research, DXP determined that these balances were not valid legal obligations to vendors and will not be invoiced or paid.As a result, the Company wrote off the aged balances that no longer represented legal obligations, resulting in a net reduction in accounts payable.

Landed cost inventory adjustment The Company determined that cost mark-ups for landed costs for certain inventory items related to our private label pumps had not been properly relieved upon the sale of these items.

Direct shipment cut off adjustment Direct shipment orders placed near period end may not be properly reflected in the correct period. The Company adjusted sales and cost of goods sold for items recorded in the incorrect period, as well as accounts receivable and payable.

Other Adjustments to Earnings from Continuing Operations Before Non-Controlling Interest and Income Taxes

Cut-off for credit card payment accruals In January 2020, the Company recorded its monthly payment for its P-Card credit card program, however, the charges were incurred in December 2019.This adjustment reflects the accrual in the correct period, resulting in a shift in other current liabilities between periods.

Sales tax payable accruals The Company increased other current liabilities for its accrual for state sales tax obligations stemming from open audits.

Adjustments to Provision for Income Taxes

The adjustments reflected for the provision for income taxes are the tax consequences of the above listed corrections.

Balance sheet adjustments related to purchase accounting and consolidation

On December 31, 2020, DXP closed on the acquisition of 4 businesses.The owners of 2 of the targets were eligible for true-up consideration based upon the closing financial results of calendar year 2020. This true-up consideration was paid in July 2021; however, the amount of true-up consideration was deemed to have been accrued as of the closing of the acquisitions. Therefore this adjustment resulted in an accrual for the true-up consideration and an increase in goodwill of $13.4 million.

As described above, the unvouchered purchase order discrepancies resulted in a reduction of accounts payable in the amount of $12.2 million as of December 31, 2020 and March 31, 2021.

During the consolidation of the 4 acquisitions closed on December 31, 2020, the Company improperly reflected the cash on hand at the targets as an increase in cumulative translation adjustment and other comprehensive income for approximately $2 million. This reclassification adjustment properly records the increase in cash and restricted cash upon closing.In addition, cumulative translation adjustment was also reduced by $1.8 million as a result of a reclassification associated with trade accounts receivable.

The following table presents the impact of the restatement adjustments on the Company’s previously reported balance sheets as of December 31, 2020 and March 31, 2021 on a condensed basis:



BALANCE SHEET (AT DECEMBER 31, 2020):	As Reported		Adjustments		As restated
Cash and restricted cash	$	117,444	$	1,975	$	119,419
Accounts Receivable	163,429		3,512		166,941
Federal income taxes receivable	5,632		(2,645)		2,987
Goodwill	248,339		13,428		261,767
Total Assets	$	851,861	$	16,270	$	868,131

Accounts Payable	$	75,744	$	(10,895)	$	64,849
Other current liabilities	20,834		13,895		34,729
Deferred Taxes	1,777		—		1,777
Total Liabilities	$	503,995	$	3,000	$	506,995
					—
Accumulated other comprehensive loss	$	(21,842)	$	3,829	$	(18,013)
Retained Earnings	176,637		9,441		186,078
Equity	347,866		13,270		361,136
Total Liabilities & Equity	$	851,861	$	16,270	$	868,131


	As
BALANCE SHEET (AT MARCH 31, 2021):	Reported		Adjustments		As restated
Cash and restricted cash	$	127,452	$	—	$	127,452
Accounts Receivable	168,003		1,629		169,632
Federal income taxes receivable	5,773		(2,539)		3,234
Goodwill	248,499		13,428		261,927
Total Assets	$	869,482	$	12,518	$	882,000

Accounts Payable	$	81,595	$	(10,945)	$	70,650
Other current liabilities	21,775		13,870		35,645
Deferred Taxes	2,248		121		2,369
Total Liabilities	$	516,542	$	3,046	$	519,588

Accumulated other comprehensive loss	$	(16,736)	0		$	(16,736)
Retained Earnings	176,954		9,472		186,426
Equity	352,940		9,472		362,412
Total Liabilities & Equity	$	869,482	$	12,518	$	882,000

The table below presents the impact to Operating Cash Flows on a Condensed Basis as a result of the restatement for the periods ended March 31, 2021 and 2020:


	For the Three Months Ended March 31, 2021						For the Three Months Ended March 31, 2020
	As previously reported						As previously reported
			Adjustments		As restated				Adjustments		As restated
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Net income	$	128	$	31	$	159	$	5,648	$	342	$	5,990
Reconciliation of net income to net cash provided (used in) by operating activities:
Deferred income taxes	459		121		580		928		13		941
Changes in operating assets and liabilities	3,460		(2,127)		1,333		(15,626)		(355)		(15,981)
Net cash provided by (used in) operating activities	$	10,552	$	(1,975)	$	8,577	$	(1,612)	$	—	$	(1,612)

NOTE 45 - 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.~~2020.

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


		Six Months Ended June 30,	Six Months Ended June 30,			Three Months Ended March 31,		Three Months Ended March 31,
Lease	Lease	2020	2019		Lease	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:				Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	9,183	$	9,138	Operating cash flows from operating leases	$	5,058	$	4,672
Right-of-use assets obtained in exchange for lease liabilities	Right-of-use assets obtained in exchange for lease liabilities				Right-of-use assets obtained in exchange for lease liabilities
Operating leases	Operating leases	3,933	$	5,740	Operating leases	10,126		4,326

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

Lease Classification June 30, 2020 June 30, 2019
Assets
   Operating Operating lease right-of-use assets 61,187 $ 69,094
Liabilities
   Current operating Short-term operating lease liabilities 15,879 17,887
   Non-current operating Long-term operating lease liabilities 44,158 51,188
Total operating lease liabilities $ 60,037 $ 69,075


Lease	Classification	March 31, 2021		December 31, 2020
Assets
Operating	Operating lease right-of-use assets	$	59,949	$	55,188

Liabilities
Current operating	Short-term operating lease liabilities	17,590		15,891
Non-current operating	Long-term operating lease liabilities	41,267		38,010
Total operating lease liabilities		$	58,857	$	53,901

During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, the Company paid ~~$2.6~~$0.5 million in current and future lease obligations to entities invested in by the Company’s Chief Executive Officer.

~~NOTE 5 - FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES~~

Authoritative guidance for financial assets and liabilities measured on a recurring basis applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis. Fair value, as defined in the authoritative guidance, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative guidance affects the fair value measurement of an investment with quoted market prices in an active market for identical instruments, which must be classified in one of the following categories:

~~Level 1 Inputs~~

~~Level 1 inputs come from quoted prices (unadjusted) in active markets for identical assets or liabilities.~~

~~Level 2 Inputs~~

Level 2 inputs are other than quoted prices that are observable for an asset or liability. These inputs include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from, or corroborated by, observable market data by correlation or other means.

~~Level 3 Inputs~~

~~Level 3 inputs are unobservable inputs for the asset or liability which require the Company's own assumptions.~~

Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

Our acquisitions may include contingent consideration as part of the purchase price. The fair value of the contingent consideration is estimated as of the acquisition date based on the present value of the contingent payments to be made using a weighted probability of possible payments. The unobservable inputs used in the determination of the fair value of the contingent consideration include managements assumptions about the likelihood of payment based on the established benchmarks and discount rates based on an internal rate of return analysis. The fair value measurement includes inputs that are Level 3 classified as discussed above, as they are not observable in the market. Should actual results increase or decrease as compared to the assumption used in our analysis, the fair value of the contingent consideration obligations will increase or decrease, up to the contracted limit, as applicable. Changes in the fair value of the contingent earn-out consideration are measured each reporting period and reflected in our results of operations. As of June 30, 2020, we recorded a $0.5 million liability for contingent consideration associated with the acquisition of Application Specialties Inc. ("ASI") in other current and long-term liabilities.

For the Company's assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3), the following table provides a reconciliation of the beginning and ending balances for each category therein, and gains or losses recognized during the six months ended June 30, 2020:


~~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

~~Quantitative Information about Level 3 Fair Value Measurements~~

~~The significant unobservable inputs used in the fair value measurement of the Company's contingent consideration liabilities designated as Level 3 are as follows:~~


~~(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~~

~~Sensitivity to Changes in Significant Unobservable Inputs~~

As presented in the table above, the significant unobservable inputs used in the fair value measurement of contingent consideration related to the acquisition of Application Specialties, Inc ("ASI") are annualized earnings before interest, tax, deprecation and amortization ("EBITDA") forecasts developed by the Company's management and the probability of achievement of those EBITDA results. The discount rate used in the calculation was 7.9%. With less than one year remaining on the earn-out payment schedule, changes to the discount rate would not result in a significant impact on the recorded liability.

Other financial instruments not measured at fair value on the Company's unaudited condensed consolidated balance sheet at June 30, 2020 and December 31, 2019, but which require disclosure of their fair values include: cash and cash equivalents, trade accounts receivable, trade accounts payable and accrued expenses, accrued payroll and related benefits, and the revolving line of credit. The Company believes that the estimated fair value of such instruments at June 30, 2020 and December 31, 2019 approximates their carrying value as reported on the unaudited condensed consolidated balance sheets. See ~~Note 9 - Long Term Debt~~ ~~for the fair value of our term loan debt under our syndicated credit agreement facility.~~

1012

NOTE 6 – INVENTORIES

The carrying values of inventories are as follows (in thousands):


		June 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Finished goods	Finished goods	$	129,397	$	122,510	Finished goods	$	103,560	$	105,527
Work in process	Work in process	16,616		19,721		Work in process	24,699		17,021
Obsolescence reserve	Obsolescence reserve	(14,185)		(12,867)		Obsolescence reserve	(24,852)		(25,477)
Inventories	Inventories	$	131,828	$	129,364	Inventories	$	103,407	$	97,071

NOTE 7 – COSTS AND ESTIMATED PROFITS ON UNCOMPLETED CONTRACTS

Under our customized pump production contracts in our IPS segment, amounts are billed as work progresses in accordance with agreed-upon contractual terms, upon various measures of performance, including achievement of certain milestones, completion of specified units, or completion of a contract. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. Our contract assets are presented as “Cost and estimated profits in excess of billings” on our condensed consolidated balance sheets. However, we sometimes receive advances or deposits from our customers before revenue is recognized, resulting in contract liabilities that are presented as “Billings in excess of costs and estimated profits” on our condensed consolidated balance sheets.

Costs and estimated profits on uncompleted contracts and related amounts billed were as follows (in thousands):


		June 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Costs incurred on uncompleted contracts	Costs incurred on uncompleted contracts	$	62,561	$	51,017	Costs incurred on uncompleted contracts	$	29,426	$	36,969
Estimated profits, thereon	Estimated profits, thereon	12,632		10,771		Estimated profits, thereon	5,259		6,711
Total	Total	75,193		61,788		Total	34,685		43,680
Less: billings to date	Less: billings to date	48,387		41,223		Less: billings to date	26,217		29,315
Net	Net	$	26,806	$	20,565	Net	$	8,468	$	14,365

Such amounts were included in the accompanying condensed Consolidated Balance Sheets for ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 under the following captions (in thousands):


		June 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Costs and estimated profits in excess of billings	Costs and estimated profits in excess of billings	$	30,376	$	32,455	Costs and estimated profits in excess of billings	$	14,415	$	18,459
Billings in excess of costs and estimated profits	Billings in excess of costs and estimated profits	(3,569)		(11,871)		Billings in excess of costs and estimated profits	(5,950)		(4,061)
Translation adjustment	Translation adjustment	(1)		(19)		Translation adjustment	3		(33)
Net	Net	$	26,806	$	20,565	Net	$	8,468	$	14,365

During the ~~six~~three months ended ~~June 30, 2020, $11.7~~March 31, 2021, $0.9 million of the balances that were previously classified as contract liabilities at the beginning of the period shipped. Contract assets and liability changes were primarily due to normal activity and timing differences between our performance and customer payments.

NOTE 8 – INCOME TAXES

Our effective tax rate from continuing operations was ~~23.2%~~88.8 percent for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 compared to ~~a tax expense of 25.6%~~23.3 percent for the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. Compared to the U.S. statutory rate for the ~~six~~three months ended ~~June 30,~~March 31, 2021, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions recorded due to tax authorities’ aggressive auditing of research and development tax credits. The effective tax was decreased by research and development tax credits and other credits. Compared to the U.S. statutory rate for the three months ended March 31, 2020, the effective tax rate was increased by state taxes, foreign taxes, and nondeductible expenses and was partially offset by 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 and partially offset by research and development~~ tax credits, and other tax credits.

To the extent penalties and interest would be assessed on any underpayment of income tax, such accrued amounts would be classified as a component of income tax provision (benefit) in the financial statements consistent with the Company’s policy.

NOTE 9 – LONG-TERM DEBT

The components of the Company's long-term debt consisted of the following (in thousands):


		June 30, 2020						December 31, 2019							March 31, 2021				December 31, 2020
		Carrying Value ⁽¹⁾		Fair Value		Carrying Value ⁽¹⁾		Fair Value			Carrying Value (1)		Fair Value		Carrying Value (1)		Fair Value
ABL Revolver	ABL Revolver	$	—	$	—	$	—	$	—	ABL Revolver	$	—	$	—	$	—	$	—
Term Loan B	Term Loan B	228,125		217,289		244,375		244,375		Term Loan B	329,175		329,175		330,000		325,875
Total long-term debt	Total long-term debt	228,125		217,289		244,375		244,375		Total long-term debt	329,175		329,175		330,000		325,875
Less: current portion	Less: current portion	(2,500)		(2,381)		(2,500)		(2,500)		Less: current portion	(3,300)		(3,300)		(3,300)		(3,259)
Long-term debt less current maturities	Long-term debt less current maturities	$	225,625	$	214,908	$	241,875	$	241,875	Long-term debt less current maturities	$	325,875	$	325,875	$	326,700	$	322,616

⁽¹⁾ Carrying value amounts do not include unamortized debt issuance costs of ~~$5.5~~$9.1 million and ~~$6.5~~$9.6 million for ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

Credit Agreements

On March 17, 2020, the Company entered into an Increase Agreement (the "Increase Agreement") that provided for a ~~$135~~$135.0 million asset-backed revolving line of credit (the "ABL Revolver") a $50.0 million increase above the $85.0 million original revolver. The Increase Agreement amends and supplements that certain Loan and Security Agreement, dated as of August 29, 2017. As of ~~June 30, 2020,~~March 31, 2021, the Company had 0no amount outstanding under the ABL Revolver and had ~~$131.0~~$131.2 million of borrowing capacity, net of the impact of outstanding letters of credit.

On December 23, 2020, DXP entered into a new seven year, $330 million Senior Secured Term Loan B (the “Term Loan B Agreement”), which replaced DXP’s previously existing Senior Secured Term Loan.

The fair value measurements used by the Company are considered Level 2 inputs, as defined in the fair value hierarchy. The fair value estimates were based on quoted prices for identical or similar securities.

The Company was in compliance with all financial covenants under the ABL Revolver and Term Loan B Agreements as of ~~June 30, 2020.~~March 31, 2021.

NOTE 10 - EARNINGS PER SHARE DATA

Basic earnings per share is computed based on weighted average shares outstanding and excludes dilutive securities. Diluted earnings per share is computed including the impacts of all potentially dilutive securities.

The following table sets forth the computation of basic and diluted earnings per share for the periods indicated (in thousands, except per share data):


											Three Months Ended March 31,
		Three Months Ended June 30,						Six Months Ended June 30,							2021	2020
		2020		2019		2020		2019			(Restated)		(Restated)
Basic:	Basic:									Basic:
Weighted average shares outstanding	Weighted average shares outstanding	17,735		17,596		17,719		17,581		Weighted average shares outstanding	19,186		17,713
Net income attributable to DXP Enterprises, Inc.	Net income attributable to DXP Enterprises, Inc.	$	2,142	$	13,459	$	7,852	$	20,750	Net income attributable to DXP Enterprises, Inc.	$	371	$	6,052
Convertible preferred stock dividend	Convertible preferred stock dividend	22		22		45		45		Convertible preferred stock dividend	23		23
Net income attributable to common shareholders	Net income attributable to common shareholders	$	2,120	$	13,437	$	7,807	$	20,705	Net income attributable to common shareholders	$	348	$	6,029
Per share amount	Per share amount	$	0.12	$	0.76	$	0.44	$	1.18	Per share amount	$	0.02	$	0.34

Diluted:	Diluted:									Diluted:
Weighted average shares outstanding	Weighted average shares outstanding	17,735		17,596		17,719		17,581		Weighted average shares outstanding	19,186		17,713
Assumed conversion of convertible preferred stock	Assumed conversion of convertible preferred stock	840		840		840		840		Assumed conversion of convertible preferred stock	840		840
Total dilutive shares	Total dilutive shares	18,575		18,436		18,559		18,421		Total dilutive shares	20,026		18,553
Net income attributable to common shareholders	Net income attributable to common shareholders	$	2,120	$	13,437	$	7,807	$	20,705	Net income attributable to common shareholders	$	348	$	6,029
Convertible preferred stock dividend	Convertible preferred stock dividend	22		22		45		45		Convertible preferred stock dividend	23		23
Net income attributable to DXP Enterprises, Inc.	Net income attributable to DXP Enterprises, Inc.	$	2,142	$	13,459	$	7,852	$	20,750	Net income attributable to DXP Enterprises, Inc.	$	371	$	6,052
Per share amount	Per share amount	$	0.12	$	0.73	$	0.42	$	1.13	Per share amount	$	0.02	$	0.32

NOTE 11 - COMMITMENTS AND CONTINGENCIES

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.

NOTE 12 - SEGMENT REPORTING

The Company's reportable business segments are: Service Centers, Innovative Pumping Solutions and Supply Chain Services. The Service Centers segment is engaged in providing maintenance, MRO products, equipment and integrated services, including logistics capabilities, to industrial customers. The Service Centers segment provides a wide range of MRO products in the rotating equipment, bearing, power transmission, hose, fluid power, metal working, industrial supply, safety products and safety services categories. The Innovative Pumping Solutions segment fabricates and assembles custom-made pump packages, ~~remanufactures~~re-manufactures pumps and manufactures branded private label pumps. The Supply Chain Services segment provides a wide range of MRO products and manages all or part of a customer's supply chain, including warehouse and inventory management.

The high degree of integration of the Company's operations necessitates the use of a substantial number of allocations and apportionments in the determination of business segment information. Sales are shown net of inter-segment eliminations.

The following table sets out financial information related to the Company's segments excluding amortization (in thousands):



	Three Months Ended March 31,
	2021								2020
	(Restated)								(Restated)
	SC		IPS		SCS		Total		SC		IPS		SCS		Total
Product sales1	$	165,342	$	—	$	31,777	$	197,119	$	169,795	$	—	$	44,152	$	213,947
Inventory services2	—		—		4,196		4,196		—		—		4,225		4,225
Staffing services3	21,027		—		—		21,027		12,790		—		—		12,790
Pump production4	—		23,245		—		23,245		—		70,021		—		70,021
Total Revenue	$	186,369	$	23,245	$	35,973	$	245,587	$	182,585	$	70,021	$	48,377	$	300,983
Income (loss) from operations	$	22,137	$	947	$	2,323	$	25,407	$	17,330	$	10,428	$	3,755	$	31,513

1Product sales that are recognized at a point in time.

2 Inventory management services that are recognized over the contract life.

Three Months Ended June 30,
2020 2019
SC IPS SCS Total SC IPS SCS Total
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) — — 4,086 $ 4,086 — — 3,927 $ 3,927
Staffing services (day-rate basis) 9,562 — — $ 9,562 15,534 — — $ 15,534
Customized pump production (recognized over time) — 60,479 — $ 60,479 — 81,028 — $ 81,028
Total Revenue $ 153,848 $ 60,479 $ 37,074 $ 251,401 $ 199,978 $ 81,028 $ 52,312 $ 333,318
Income from operations⁽¹⁾
$ 13,664 $ 8,565 $ 3,353 $ 25,582 $ 23,230 $ 12,028 $ 3,784 $ 39,042
3Staffing services that are invoiced on a day-rate basis.

Six Months Ended June 30,
2020 2019
SC IPS SCS Total SC IPS SCS Total
Product sales (recognized at a point in time) $ 314,081 $ — $ 77,140 $ 391,221 $ 356,112 $ — $ 94,770 $ 450,882
Inventory management services (recognized over contract life) — — 8,311 $ 8,311 — — 7,865 $ 7,865
Staffing services (day-rate basis) 22,352 — — $ 22,352 30,045 — — $ 30,045
Customized pump production (recognized over time) — 130,500 — $ 130,500 — 155,751 — $ 155,751
Total Revenue $ 336,433 $ 130,500 $ 85,451 $ 552,384 $ 386,157 $ 155,751 $ 102,635 $ 644,543
Income from operations $ 30,590 $ 18,993 $ 7,108 $ 56,691 $ 42,210 $ 18,827 $ 7,870 $ 68,907
4Custom pump production is recognized over time.

The following table presents reconciliations of operating income for reportable segments to the consolidated income before taxes (in thousands):


											Three Months Ended March 31,
		Three Months Ended June 30,						Six Months Ended June 30,							2021	2020
		2020		2019		2020		2019			(Restated)		(Restated)
Operating income for reportable segments	Operating income for reportable segments	$	25,582	$	39,042	$	56,691	$	68,907	Operating income for reportable segments	$	25,407	$	31,513
Adjustment for:	Adjustment for:									Adjustment for:
Amortization of intangible assets	Amortization of intangible assets	3,046		3,803		6,243		7,617		Amortization of intangible assets	4,146		3,197
Impairment and other charges										Impairment and other charges	—		—
Corporate expenses	Corporate expenses	15,783		12,392		32,780		23,627		Corporate expenses	15,028		16,997
Income from operations		$	6,753	$	22,847	17,668		37,663
Income (loss) from operations										Income (loss) from operations	$	6,233	$	11,319
Interest expense	Interest expense	3,930		4,885		8,307		9,925		Interest expense	5,243		4,377
Other income, net		133		185		(701)		152
Income before income taxes		$	2,690	$	17,777	$	10,062	$	27,586
Other (income) expense, net										Other (income) expense, net	(430)		(834)
Income (loss) before income taxes										Income (loss) before income taxes	$	1,420	$	7,776

NOTE 13 - ~~BUSINESS ACQUISITIONS~~SUBSEQUENT EVENTS

On ~~February 1, 2020,~~April 30, 2021, the Company completed the acquisition of ~~Turbo Machinery Repair~~Carter & Verplanck, LLC (“Turbo”), a pump and industrial equipment repair, maintenance, machining and labor services company. The Company paid approximately $3.2 million in cash. For the six months ended June 30, 2020, Turbo contributed sales of $1.2 million.

~~On January 1, 2020, the Company completed the acquisition of substantially all of the assets of Pumping Systems, Inc. (“PSI”~~CVI”), a distributor of ~~pumps, systems~~products and ~~related services.~~services exclusively focused on serving the water and wastewater markets. The ~~PSI~~ acquisition of CVI 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~~stock and ~~stock. For the six months ended June 30, 2020, PSI contributed sales~~is subject to normal transaction adjustments for a transaction of ~~$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~~

this size and nature, including working capital true-ups.

~~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.

1516

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 ~~June 30, 2020~~March 31, 2021 should be read in conjunction with our previous Annual Report on Form ~~10-K~~10-K/A and our Quarterly Reports on Form ~~10-Q,~~10-Q/A, 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~~10-Q/A (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~~10-K//A filed with the Securities and Exchange Commission on ~~March 13, 2020.~~October 22, 2021. 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~~General

The pandemic continued to have a significant impact on our business in the ~~six months ended June 30, 2020,~~first quarter of 2021. The marketplace broadly, and the ~~widely publicized~~Company specifically, continued to operate with certain modifications to balance re-opening with employee and ~~discussed coronavirus (COVID-19) outbreak rapidly spread across~~customer safety. However, most of the markets in which we operate continued to normalize in the quarter and re-open. This improved the outlook of the manufacturing and construction customers that support our traditional branch and onsite business. Although the rate of improvement remains gradual and the overall activity level remains below pre-pandemic levels, DXP is seeing a modest improvement from monthly lows experienced in July of 2020.

COVID-19 PandemicImpact

The COVID-19 pandemic has impacted and is likely to continue impacting our businesses and operations as well as the operations of our customers and suppliers. From a customer perspective, business re-openings, production and related activity throughout the quarter varied based on geography, industry and regional COVID-19 pandemic conditions. The Company's major operational facilities and infrastructure (i.e., distribution centers, branches, and on-site logistic partners) are remaining operational with limited disruptions, while adhering to strict safety and social-distancing protocols. In addition, the Company has prioritized maintaining all facilities safe for customers and employees to work and interact. Many of our employees, depending on local conditions and regulations, have returned to a work-from-office environment, and we expect that trend to continue in the near term.

To date, the Company has been able to absorb the pandemic impact with minimal workforce reductions or furloughs, which positions the Company for accelerated growth post-pandemic. The oil and gas industry continues to be impacted by the COVID-19 pandemic, but there are signs that the world ~~driving a sharp erosion~~is beginning to re-open and that overall economic and demand recovery is building. Demand for oil has increased globally as oil inventories were down in ~~demand for crude oil~~March 2021 near their five-year averages, 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+)~~the expanded alliance, collectively known as 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 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 1,079 active rigs in July of 2019 to only 296 as of 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 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~~support commodity prices. We see these as positive signs for our ~~business despite the challenges that arise from closing offices~~businesses tied to capital budgets 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,oil markets 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.general.

As ~~a distribution business,~~of the end of the first quarter of 2021, we have ~~also closely monitored~~remained undrawn on our $135 million bank revolver; and it remains available for use in the ~~ability of our suppliers~~event a need arises. In response to easing restrictions and ~~transportation providers~~the continued vaccination efforts, we continue 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 toactively monitor the situation and ~~have ongoing dialogue with~~may take further actions that alter our ~~vendors~~business operations as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, suppliers, and ~~customers regarding~~shareholders. While we are unable to determine or predict the ~~status~~nature, duration, or scope 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~~overall impact the COVID-19 ~~remains. A prolonged contraction of activity related to oil and gas and a long lasting economic impact from COVID-19 may~~pandemic will have ~~a further adversely impact~~ on our business, results of operations, liquidity, or capital resources, we believe that we have remained nimble and are poised to remain opportunistic during 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.recovery.

1718

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 March 31,
		Three Months Ended June 30,															2021		%	2020	%
		2020		%		2019		%			(Restated)				(Restated)
Sales	Sales	$	251,401	100.0	%	$	333,318	100.0	%	Sales	$	245,587	100.0	%	$	300,983	100.0	%
Cost of sales	Cost of sales	181,705		72.3	%	241,331		72.4	%	Cost of sales	173,957		70.8	%	217,869		72.4	%
Gross profit	Gross profit	$	69,696	27.7	%	$	91,987	27.6	%	Gross profit	$	71,630	29.2	%	$	83,114	27.6	%
Selling, general and administrative expenses	Selling, general and administrative expenses	62,943		25.0	%	69,140		20.7	%	Selling, general and administrative expenses	65,397		26.6	%	71,795		23.9	%
Income from operations		$	6,753	2.7	%	$	22,847	6.9	%
Income (loss) from operations										Income (loss) from operations	$	6,233	2.5	%	$	11,319	3.8	%
Other (income) expense, net	Other (income) expense, net	133		0.1	%	185		0.1	%	Other (income) expense, net	(430)		(0.2)	%	(834)		(0.3)	%
Interest expense	Interest expense	3,930		1.6	%	4,885		1.5	%	Interest expense	5,243		2.1	%	4,377		1.5	%
Income before income taxes		$	2,690	1.1	%	$	17,777	5.3	%
Income (loss) before income taxes										Income (loss) before income taxes	$	1,420	0.6	%	$	7,776	2.6	%
Provision for income taxes (benefit)	Provision for income taxes (benefit)	610		0.2	%	4,427		1.3	%	Provision for income taxes (benefit)	1,261		0.5	%	1,786		0.6	%
Net income		$	2,080	0.8	%	$	13,350	4.0	%
Net (loss) income attributable to noncontrolling interest		(62)		—		(109)		—
Net income (loss)										Net income (loss)	$	159	0.1	%	$	5,990	2.0	%
Net income (loss) attributable to noncontrolling interest										Net income (loss) attributable to noncontrolling interest	(212)		(0.1)	%	(62)		—
Net income attributable to DXP Enterprises, Inc.	Net income attributable to DXP Enterprises, Inc.	$	2,142	0.9	%	$	13,459	4.0	%	Net income attributable to DXP Enterprises, Inc.	$	371	0.2	%	$	6,052	2.0	%
Per share amounts attributable to DXP Enterprises, Inc.	Per share amounts attributable to DXP Enterprises, Inc.									Per share amounts attributable to DXP Enterprises, Inc.
Basic earnings per share		0.12				$	0.76
Diluted earnings per share		0.12				$	0.73
Basic earnings (loss) per share										Basic earnings (loss) per share	0.02				$	0.34
Diluted earnings (loss) per share										Diluted earnings (loss) per share	0.02				$	0.32

Three Months Ended ~~June 30, 2020~~March 31, 2021 compared to Three Months Ended ~~June 30, 2019~~March 31, 2020

SALES. Sales for the three months ended ~~June 30, 2020~~March 31, 2021 decreased ~~$81.9~~$55.4 million, or ~~24.6%~~18.4%, to approximately ~~$251.4~~$245.6 million from ~~$333.3~~$301.0 million for the prior year's corresponding period. Sales from businesses acquired ~~during the year~~in December 2020 accounted for ~~$4.5~~$28.4 million of the sales for the three months ended ~~June 30, 2020.~~March 31, 2021. This overall sales decrease is the result of a decrease in sales in our ~~SC,~~ IPS and SCS segments of ~~$46.1 million, $20.5~~$46.8 million and ~~$15.2~~$12.4 million, ~~respectively.~~partially offset by an increase in sales of $3.8 million in our SC segment. The fluctuations in sales isare 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,
	2021		2020		Change		Change%
	(Restated)		(Restated)
Sales by Business Segment	(in thousands, except change%)
Service Centers	$	186,369	$	182,585	$	3,784	2.1	%
Innovative Pumping Solutions	23,245		70,021		(46,776)		(66.8)	%
Supply Chain Services	35,973		48,377		(12,404)		(25.6)	%
Total DXP Sales	$	245,587	$	300,983	$	(55,396)	(18.4)	%

1819

Service Centers segment. Sales for the Service Centers segment ~~decreased~~increased by approximately ~~$46.1~~$3.8 million, or ~~23.1%~~2.1% for the three months ended ~~June 30, 2020~~March 31, 2021 compared to the prior year's corresponding period. Excluding ~~$4.5~~$28.4 million of ~~second~~first quarter ~~2020~~2021 Service Centers segment sales from businesses acquired in December 2020, Service Centers segment sales for the ~~second~~first quarter ~~in 2020~~ decreased ~~$50.6~~$24.6 million, or ~~25.3%~~13.5% 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 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 ~~$20.5~~$46.8 million, or ~~25.4%~~66.8% for the three months ended ~~June 30, 2020~~March 31, 2021 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.~~COVID-19 pandemic.

Supply Chain Services segment. Sales for the SCS segment decreased by ~~$15.2~~$12.4 million, or ~~29.1%~~25.6%, for the three months ended ~~June 30, 2020,~~March 31, 2021, 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 negative economic impacts of the COVID-19 pandemic.

GROSS PROFIT. Gross profit as a percentage of sales for the three months ended ~~June 30, 2020~~March 31, 2021 increased by approximately 13155 basis points from the prior year's corresponding period. Excluding the impact of the businesses acquired in December 2020, gross profit as a percentage of sales increased by approximately 15135 basis points. The increase in the gross profit percentage excluding the businesses acquired is primarily the result of an approximate ~~292~~616 basis point increase in the gross profit percentage in our ~~SCS~~IPS segment, ~~partially offset by~~ a 53102 basis point ~~decrease~~increase in the gross profit percentage in our SC segment and a 522 basis point ~~decrease~~increase in the gross profit percentage in our ~~IPS~~SCS segment.

Innovative Pumping Solutions segment. As a percentage of sales, the ~~second~~first quarter gross profit percentage for the IPS segment increased approximately 5616 basis points from the prior year's corresponding ~~period~~period. The increase in gross profit percentage is due to a mix shift (higher margin international work and domestic water and wastewater projects) as well as the shipment of negative gross profit percentage work completing in 2020. Gross profit dollars decreased $12.1 million primarily as a result of ~~an increase~~a decrease in utilization ~~and capacity within IPS' engineered-to-order business and an overall improvement in~~as a result of significantly reduced capital expenditure budgets by our customers associated with the ~~pricing environment. Additionally, gross profit margins for individual orders have continued to improve because~~negative economic impacts 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.COVID-19 pandemic.

Service Centers segment. As a percentage of sales, the ~~second~~first quarter gross profit percentage for the Service Centers ~~decreased~~increased approximately 59121 basis points and ~~decreased~~increased approximately 53102 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~~Gross profit for the Service Centers segment excluding businesses acquired decreased ~~$9.6~~$5.4 million, or ~~41.2%~~10.4%, during the ~~second~~first quarter of ~~2020~~2021 compared to the prior year’s corresponding period. . The decrease in ~~operating income~~gross profit 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~~22 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~~Gross profit for the ~~second~~first quarter of 2020 decreased ~~$0.4~~$2.7 million or 24.9% compared to the prior year's corresponding period, ~~mainly~~primarily the result of the decline in sales due to the ~~above- mentioned decrease in sales.~~items discussed above.

SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). Selling, general and administrative expense for the three months ended ~~June 30, 2020~~March 31, 2021 decreased by approximately ~~$6.2~~$6.4 million, or ~~9.0%~~8.9%, to ~~$62.9~~$65.4 million from ~~$69.1~~$71.8 million for the prior year's corresponding period. Selling, general and administrative expense from businesses acquired accounted for ~~$1.2~~$4.9 million. Excluding expenses from businesses acquired in December 2020, SG&A for the quarter decreased by ~~$7.4~~$11.3 million, or ~~10.7%~~15.7%. 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 the COVID-19 pandemic 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~~first quarter of ~~2020~~2021 decreased by ~~$16.1~~$5.1 million to ~~$6.8~~$6.2 million, from ~~$22.8~~$11.3 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.~~sales.

INTEREST EXPENSE. Interest expense for the ~~second~~first quarter of ~~2020 decreased $1.0~~2021 increased $0.9 million compared with the prior year's corresponding period primarily due to a higher principal balance for the three months ended March 31, 2021 compared to the prior year's corresponding period as a result of the Company entering into a new term loan in December 2020 partially offset by lower LIBOR rates ~~and a reduction in principal balance.~~for the three months ended March 31, 2021.

INCOME TAXES. Our effective tax rate from continuing operations was ~~a tax expense of 22.9%~~88.8 percent for the three months ended ~~June 30, 2020~~March 31, 2021 compared to ~~a tax expense of 24.9%~~23.3 percent for the three months ended ~~June 30, 2019.~~March 31, 2020. Compared to the U.S. statutory rate for ~~the~~ three months ended ~~June 30,~~March 31, 2021, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions recorded due to tax authorities’ aggressive auditing of research and development tax credits. The effective tax was decreased by research and development tax credits and other credits. Compared to the U.S. statutory rate for three months ended March 31, 2020, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and ~~nondeductible expenses.~~uncertain tax positions which required an increase in reserves. The effective tax rate was ~~decreased~~partially offset 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 U.S. crude oil production remains at levels experienced during the first six months of 2020.

~~GROSS PROFIT.~~ Gross profit as a percentage of sales for the six months ended June 30, 2020 increased by approximately 49 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 53 basis points. The increase in the gross profit percentage is primarily the result of an approximate 208 basis point increase in the gross profit percentage in our IPS segment and 143 basis point increase in the gross profit percentage in our SCS segment, partially offset by a 35 basis point decrease in the gross profit percentage in our SC segment excluding businesses acquired during the six months ended June 30, 2020.

~~Innovative Pumping Solutions segment.~~ As a percentage of sales, the six months ended June 30, 2020 gross profit percentage for the IPS segment increased approximately 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 $0.2 million or 0.9%, primarily as a result of the below mentioned decrease in SG&A.

~~Service Centers segment.~~ As a percentage of sales, the six months ended June 30, 2020 gross profit percentage for the Service Centers decreased approximately 44 basis points 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 $11.6 million, or 27.5%. The decrease in operating income is primarily the result of a decline in sales.

~~Supply Chain Services segment.~~ Gross profit as a percentage of sales increased approximately 143 basis points, compared to the prior year's corresponding period. This was primarily as a result of costs associated with new customer site implementations which are incurred prior to sales in the comparable 2019 period. Operating income for the six month period of 2020 decreased $0.8 million compared to the prior year's corresponding period mainly due to a decrease in 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 six months ended June 30, 2020 decreased by approximately $2.5 million, or 1.8%, to $136.0 million from $138.5 million for the prior year's corresponding period. Selling, general and administrative expense from businesses acquired accounted for $2.6 million. Excluding expenses from businesses acquired, SG&A for the six months ended June 30, 2020 decreased by $5.1 million, or 3.7%. The overall decrease in SG&A is 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.~~ The overall decrease adjusting for the businesses acquired, increased 309 basis points to 24.6% from 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 six months ended June 30, 2020 decreased by $20.0 million, or 53.1%, to $17.7 million, from $37.7 million in the prior year's corresponding period. This decrease in operating income is primarily related to the decrease in sales discussed above.

~~INTEREST EXPENSE.~~ ~~Interest expense for the six months ended June 30, 2020 decreased $1.6 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 23.2% for the six months ended June 30, 2020 compared to a tax expense of 25.6% for the six months ended June 30, 2019. Compared to the U.S. statutory rate for the six months ended 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.

LIQUIDITY AND CAPITAL RESOURCES

General Overview

As of ~~June 30, 2020,~~March 31, 2021, we had cash and restricted cash ~~equivalents~~ of ~~$78.8~~$127.5 million and ~~bank and other borrowings~~credit facility availability of ~~$222.6~~$131.2 million. We have a ~~$135~~$135.0 million ~~Asset-Based~~asset-based loan facility, offset by letters of credit of $3.8 million, that is due to mature in August 2022, under which we had no borrowings outstanding as of ~~June 30, 2020.~~March 31, 2021 and a Term Loan B with $329.2 million in borrowings.

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 generated by or used in operating activities, net cash provided by or used in investing activities and net cash used in financing activities for the periods presented (in thousands):


		Six Months Ended June 30,							Three Months Ended March 31,
		2020		2019			2021		2020
Net Cash Provided by (Used in):	Net Cash Provided by (Used in):					Net Cash Provided by (Used in):	(Restated)
Operating Activities	Operating Activities	$	61,764	$	(3,460)	Operating Activities	$	8,577	$	(1,612)
Investing Activities	Investing Activities	(19,163)		(8,550)		Investing Activities	617		(17,388)
Financing Activities	Financing Activities	(17,133)		(3,267)		Financing Activities	(1,365)		(742)
Effect of Foreign Currency	Effect of Foreign Currency	(1,025)		311		Effect of Foreign Currency	204		(1,730)
Net Change in Cash	Net Change in Cash	$	24,443	$	(14,966)	Net Change in Cash	$	8,033	$	(21,472)

Operating Activities

The Company ~~provided $61.8~~generated $8.6 million of cash in operating activities during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 compared to ~~using $3.5~~$1.6 million use of cash during the prior year's corresponding period. The ~~$65.2~~$10.2 million increase in the amount of cash provided between the two periods was primarily driven by the collections of receivables associated with trade accounts receivables and ~~decreased inventory purchases.~~reductions in long-term project work which resulted in lower costs in-excess of billings.

Investing Activities

For the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, net cash ~~used in~~provided by investing activities was ~~$19.2~~$0.6 million compared to ~~$8.6~~$17.4 million inuse of cash during the prior year’s corresponding ~~period in June 30, 2019.~~period. This ~~$10.6~~$18.0 million increase was primarily driven by the purchase of PSI and Turbo in the first quarter of 2020. For the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, purchases of property and equipment decreased to approximately ~~$5.1~~$0.7 million compared to ~~$8.6~~$3.2 million in ~~2019~~2020 primarily due to ~~leasehold improvements~~reduced capital spending as a result of company-wide cost cutting measures in ~~2019 with no comparable activity in 2020.~~response to the COVID-19 pandemic. The current quarter also benefited from the sale of a corporate asset totaling $1.3 million.

2221

Financing Activities

For the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, net cash used in financing activities was ~~$17.1~~$1.4 million, compared to net cash used in financing activities of ~~$3.3~~$0.7 million ~~for~~during the prior year’s corresponding ~~period in June 30, 2019.~~period. The activity in the period was primarily attributed to Term Loan B ~~payments~~required prepayments of ~~$15.6~~$0.8 million in 2021 compared to $0.6 million in 2020 and tax withholding payments for employee stock awards of $0.5 million in 2021 compared to ~~$1.3~~$0.1 million in ~~2019 and $1.1 million associated with common stock sold in public markets in~~ 2020.

On March 17, 2020, the Company entered into an Increase Agreement (the "Increase Agreement") that provided for a ~~$135~~$135.0 million asset-backed revolving line of credit (the "ABL Revolver"), a ~~$50~~$50.0 million increase from the $85.0 million available under the original revolver. During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, the amount available to be borrowed under our credit facility ~~increased~~decreased to ~~$131.0~~$131.2 million compared to ~~$81.6~~$131.9 million at December 31, ~~2019, primarily as a result of the above mentioned Increase Agreement offset by outstanding letters of credit.~~2020.

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~~10-K/A for the year ended December 31, ~~2019.~~2020. For a more complete discussion of our significant accounting policies and business practices, refer to the consolidated annual report on Form ~~10-K~~10-K/A filed with the Securities and Exchange Commission on ~~March 13, 2020.~~October 22, 2021. The results of operations for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 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~~10-K/A for the year ended December 31, ~~2019.~~2020. Our exposures to market risk have not changed materially since December 31, ~~2019.~~2020.

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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 ~~June 30, 2020,~~March 31, 2021, 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~~had concluded that our disclosure controls and procedures were effective, as of ~~June 30, 2020.~~March 31, 2021.However, subsequent to that assessment,management identified a material weakness in our internal controls as we did not have adequate internal controls that ensure timely clearing of aged accounts payables arising from three-way match exceptions for items ordered through purchase orders. In connection with the correction associated with aged accounts payable, management identified a material weakness in the design of the Company’s controls around journal entries, specifically requiring review and approval by senior management with the requisite experience, authority and competence to determine the proper conclusion. In addition, management identified a material weakness around business combination accounting, specifically as it relates to the identification of all agreements and their impact on the transaction and future consideration and disclosure. Consequently, management re-evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2021 and has concluded that our disclosure controls and procedures were not effective as of that date because of such material weaknesses.

Remediation Plan and Status for Material Weakness

In response to the identified material weakness, our management, with the oversight of the Audit Committee of our Board of Directors, has dedicated significant resources, including the involvement of outside advisors, and efforts to improve our internal control over financial reporting and has taken immediate action to remediate the material weaknesses identified. Certain remedial actions have been completed including ongoing involvement of outside advisors, reassessment of application controls within our accounts payable procure-to-pay platform and training programs around the issuance of purchase orders. The Company will further enhance these controls over the remainder of 2021.

Changes in Internal Control over Financial Reporting

There ~~are~~were no changes in ~~our~~the Company’s internal control over financial reporting that occurred during the ~~six months ended June 30, 2020~~first quarter of 2021 that have materially affected, or are reasonably likely to materially affect, ~~our~~the Company’s 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.

ITEM 1A. RISK FACTORS.

~~The~~COVID-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~~There have been no material changes 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, 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~~as previously disclosed in “Part I. Item 1A. Risk Factors” in our annual report on 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~~10-K/A for 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 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 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.

year end December 31, 2020.

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

~~Repurchases~~Issuer Purchases of ~~Common Stock~~Equity Securities

A summary of our purchases of DXP Enterprises, Inc. common stock during the ~~second~~first quarter of fiscal year ~~2020~~2021 is as

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.


		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 Number of Shares that May Yet Be Purchased Under the Plans or Programs

	Jan 1 - Jan 31	17,443	$	22.23	—	$	—
	Feb 1 - Feb 28	835	$	24.61	—	$	—
	Mar 1 - Mar 31	3,578	$	30.45	—	$	—
	Total	21,856	$	23.67	—	$	—

(1)	Represents shares employees elected to have withheld to satisfy their tax liabilities related to restricted stock vested. When this settlement method is elected by the employee, the Company repurchases the shares withheld upon vesting of the award

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

ITEM 4. MINE SAFETY DISCLOSURES.

None.

ITEM 5. OTHER INFORMATION.

None.

2724

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, filed with the Commission on August 20, 1998. File No. :333-61953).


3.2			Bylaws ~~as amended on July 27, 2011~~of DXP Enterprises, Inc. (incorporated by reference to Exhibit ~~3.1~~3.2 to the ~~Company's~~Company’s Quarterly Report on Form 10-Q, filed with the ~~Commission~~SEC on May 10, ~~2018.~~2018 (File No. 000-21513)., as amended on July 27, 2011.


~~10.1~~3.3			~~Equity Distribution Agreement, dated May 11, 2020, by and between~~Amendment to Section 3.4 of the ~~Company and the Distribution Agent~~Bylaws of DXP Enterprises, Inc., effective January 1, 2022. Bylaws, as amended on April 23, 201 (incorporated by reference to Exhibit ~~1.1~~3.1 to the ~~Company’s~~Company's Current Report on Form 8-K (File No. 000-21513 : 21860170 , filed with the Commission on ~~May 12, 2020, File No.: 000-21513)~~April 27, 2021).
* 10.1			Form of Indemnification Agreement between DXP Enterprises, Inc. and each of its directors.
* 22.1			Subsidiary Guarantors of Guaranteed Securities
* 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			The following financial information from the Company’s Quarterly Report on Form 10 -Q 10-Q/A for the quarter ended ~~June 30, 2020,~~March 31, 2021, 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~~10-Q/A for the quarter ended ~~June 30, 2020~~March 31, 2021 formatted in Inline XBRL.

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

2825

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: ~~August 10, 2020~~November 3, 2021

2926


	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