UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


[			☒			]			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended ~~June~~September 30, 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 ~~August 31,~~November 1, 2021: ~~18,570,840~~18,750,597 par value $0.01 per share.

EXPLANATORY NOTE

DXP Enterprises, Inc. (collectively with its subsidiaries, 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 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 reflect adjustments to the information presented in the Company’s previously-filed Quarterly Report on Form 10-Q for the quarter ended ~~June~~September 30, 2020.

In addition, the Company's consolidated financial statements for the periods covered in the quarter and ~~six-months~~nine-months ended ~~June~~September 30, 2020 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, and adjustments for inventory obsolescence reserves.The impacts of the restatement on our Unaudited Condensed Consolidated Statements of Operations and Balance Sheets are detailed in Note 4 to the Notes to Unaudited Condensed Consolidated Financial Statements.

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.

DXP ENTERPRISES, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

DESCRIPTION


Item		Page
PART I: FINANCIAL INFORMATION
	ITEM 1. Financial Statements	4
	a) Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income	4
	b) Unaudited Condensed Consolidated Balance Sheets	5
	c) Unaudited Condensed Consolidated Statements of Cash Flows	6
	d) Unaudited Condensed Consolidated Statements of Equity	7
	e) Notes to Unaudited Condensed Consolidated Financial Statements	8
	ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	17
	ITEM 3. Quantitative and Qualitative Disclosures about Market Risk	24
	ITEM 4. Controls and Procedures	25

PART II: OTHER INFORMATION		26
	ITEM 1. Legal Proceedings	26
	ITEM 1A. Risk Factors	26
	ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	26
	ITEM 3. Default upon Senior Securities	26
	ITEM 4. Mine Safety Disclosures	26
	ITEM 5. Other Information	2627
	ITEM 6. Exhibits	2728
	Signatures	2829

PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

DXP ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
				(Restated)				(Restated)					(Restated)				(Restated)
Sales	Sales	$	285,691	$	251,401	$	531,278	$	552,384	Sales	$	289,494	$	220,193	$	820,772	$	772,577
Cost of sales	Cost of sales	200,413		181,320		374,370		399,189		Cost of sales	202,551		158,892		576,921		558,081
Gross profit	Gross profit	85,278		70,081		156,908		153,195		Gross profit	86,943		61,301		243,851		214,496
Selling, general and administrative expenses	Selling, general and administrative expenses	70,432		62,943		135,829		134,738		Selling, general and administrative expenses	75,758		53,746		211,587		188,484
Impairment and other charges										Impairment and other charges	—		48,401		—		48,401
Income from operations	Income from operations	14,846		7,138		21,079		18,457		Income from operations	11,185		(40,846)		32,264		(22,389)
Other (income) expense	Other (income) expense	(105)		133		(535)		(701)		Other (income) expense	(450)		320		(985)		(381)
Interest expense	Interest expense	5,337		3,930		10,580		8,307		Interest expense	5,264		3,752		15,844		12,059
Income before income taxes		9,614		3,075		11,034		10,851
Provision for income taxes		1,684		710		2,945		2,496
Net income		7,930		2,365		8,089		8,355
Income (loss) before income taxes										Income (loss) before income taxes	6,371		(44,918)		17,405		(34,067)
Provision for income taxes (benefit)										Provision for income taxes (benefit)	(565)		(10,143)		2,380		(7,647)
Net income (loss)										Net income (loss)	6,936		(34,775)		15,025		(26,420)
Net loss attributable to noncontrolling interest	Net loss attributable to noncontrolling interest	(189)		(62)		(401)		(124)		Net loss attributable to noncontrolling interest	(189)		(109)		(590)		(233)
Net income attributable to DXP Enterprises, Inc.		8,119		2,427		8,490		8,479
Net income (loss) attributable to DXP Enterprises, Inc.										Net income (loss) attributable to DXP Enterprises, Inc.	7,125		(34,666)		15,615		(26,187)
Preferred stock dividend	Preferred stock dividend	22		22		45		45		Preferred stock dividend	23		23		68		68
Net income attributable to common shareholders		$	8,097	$	2,405	$	8,445	$	8,434
Net income (loss) attributable to common shareholders										Net income (loss) attributable to common shareholders	$	7,102	$	(34,689)	$	15,547	$	(26,255)

Net income		$	7,930	$	2,365	$	8,089	$	8,355
Net income (loss)										Net income (loss)	$	6,936	$	(34,775)	$	15,025	$	(26,420)
Currency translation adjustments	Currency translation adjustments	1,327		1,395		2,604		232		Currency translation adjustments	(2,129)		(452)		475		(220)
Comprehensive income		$	9,257	$	3,760	$	10,693	$	8,587
Comprehensive income (loss)										Comprehensive income (loss)	$	4,807	$	(35,227)	$	15,500	$	(26,640)

Earnings per share (Note 9) :
Earnings (loss) per share (Note 9) :										Earnings (loss) per share (Note 9) :
Basic	Basic	$	0.42	$	0.14	$	0.44	$	0.48	Basic	$	0.38	$	(1.95)	$	0.82	$	(1.47)
Diluted	Diluted	$	0.41	$	0.13	$	0.42	$	0.45	Diluted	$	0.36	$	(1.95)	$	0.78	$	(1.47)
Weighted average common shares outstanding :	Weighted average common shares outstanding :									Weighted average common shares outstanding :
Basic	Basic	19,291		17,735		19,239		17,719		Basic	18,710		17,790		19,060		17,743
Diluted	Diluted	20,131		18,575		20,079		18,559		Diluted	19,550		17,790		19,900		17,743

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)


		June 30, 2021		December 31, 2020			September 30, 2021		December 31, 2020
ASSETS	ASSETS			(Restated)		ASSETS			(Restated)
Current assets:	Current assets:					Current assets:
Cash	Cash	$	79,169	$	119,328	Cash	$	63,043	$	119,328
Restricted cash	Restricted cash	91		91		Restricted cash	91		91
Accounts Receivable, net of allowance of $7,948 and $8,628		193,657		166,941
Accounts Receivable, net of allowance of $8,201 and $8,628						Accounts Receivable, net of allowance of $8,201 and $8,628	205,817		166,941
Inventories	Inventories	103,447		97,071		Inventories	106,376		97,071
Costs and estimated profits in excess of billings	Costs and estimated profits in excess of billings	16,718		18,459		Costs and estimated profits in excess of billings	17,714		18,459
Prepaid expenses and other current assets	Prepaid expenses and other current assets	6,914		4,548		Prepaid expenses and other current assets	6,444		4,548
Federal income taxes receivable	Federal income taxes receivable	3,689		2,987		Federal income taxes receivable	10,906		2,987
Total current assets	Total current assets	403,685		409,425		Total current assets	410,391		409,425
Property and equipment, net	Property and equipment, net	52,456		56,899		Property and equipment, net	51,756		56,899
Goodwill	Goodwill	300,643		261,767		Goodwill	308,880		261,767
Other intangible assets, net	Other intangible assets, net	83,175		80,088		Other intangible assets, net	83,589		80,088
Operating lease ROU assets	Operating lease ROU assets	56,173		55,188		Operating lease ROU assets	53,233		55,188
Other long-term assets	Other long-term assets	5,448		4,764		Other long-term assets	5,108		4,764
Total assets	Total assets	$	901,580	$	868,131	Total assets	$	912,957	$	868,131
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Current maturities of long-term debt	Current maturities of long-term debt	$	3,300	$	3,300	Current maturities of long-term debt	$	3,300	$	3,300
Trade accounts payable	Trade accounts payable	80,208		64,849		Trade accounts payable	91,385		64,849
Accrued wages and benefits	Accrued wages and benefits	26,240		20,621		Accrued wages and benefits	26,597		20,621
Customer advances	Customer advances	7,426		3,688		Customer advances	7,652		3,688
Billings in excess of costs and estimated profits	Billings in excess of costs and estimated profits	2,300		4,061		Billings in excess of costs and estimated profits	891		4,061
Short-term operating lease liabilities	Short-term operating lease liabilities	17,512		15,891		Short-term operating lease liabilities	18,213		15,891
Other current liabilities	Other current liabilities	50,438		34,729		Other current liabilities	40,583		34,729
Total current liabilities	Total current liabilities	187,424		147,139		Total current liabilities	188,621		147,139
Long-term debt, net of unamortized debt issuance costs	Long-term debt, net of unamortized debt issuance costs	316,343		317,139		Long-term debt, net of unamortized debt issuance costs	315,920		317,139
Long-term operating lease liabilities	Long-term operating lease liabilities	37,907		38,010		Long-term operating lease liabilities	35,478		38,010
Other long-term liabilities	Other long-term liabilities	2,930		2,930		Other long-term liabilities	3,097		2,930
Deferred income taxes	Deferred income taxes	2,867		1,777		Deferred income taxes	8,501		1,777
Total long-term liabilities	Total long-term liabilities	360,047		359,856		Total long-term liabilities	362,996		359,856
Total liabilities	Total liabilities	547,471		506,995		Total liabilities	551,617		506,995
Commitments and contingencies (Note 10)	Commitments and contingencies (Note 10)	0		0		Commitments and contingencies (Note 10)	0		0
Shareholders' equity:	Shareholders' equity:					Shareholders' equity:
Series A and B preferred stock, $1.00 par value each; 1,000,000 shares authorized each	Series A and B preferred stock, $1.00 par value each; 1,000,000 shares authorized each	16		16		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; 18,558,674 and 19,208,067 outstanding		194		189
Common stock, $0.01 par value, 100,000,000 shares authorized; 18,750,597 and 19,208,067 outstanding						Common stock, $0.01 par value, 100,000,000 shares authorized; 18,750,597 and 19,208,067 outstanding	195		189
Additional paid-in capital	Additional paid-in capital	203,562		192,068		Additional paid-in capital	206,007		192,068
Retained earnings	Retained earnings	194,523		186,078		Retained earnings	201,626		186,078
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(15,409)		(18,013)		Accumulated other comprehensive loss	(17,538)		(18,013)
Treasury stock, at cost 1,014,053 shares at June 30, 2021		(29,174)		—
Treasury stock, at cost 1,014,053 shares at September 30, 2021						Treasury stock, at cost 1,014,053 shares at September 30, 2021	(29,174)		—
Total DXP Enterprises, Inc. equity	Total DXP Enterprises, Inc. equity	353,712		360,338		Total DXP Enterprises, Inc. equity	361,132		360,338
Noncontrolling interest	Noncontrolling interest	397		798		Noncontrolling interest	208		798
Total equity	Total equity	354,109		361,136		Total equity	361,340		361,136
Total liabilities and equity	Total liabilities and equity	$	901,580	$	868,131	Total liabilities and equity	$	912,957	$	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)


		Six Months Ended June 30,					Nine Months Ended September 30,
		2021		2020			2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:			(Restated)		CASH FLOWS FROM OPERATING ACTIVITIES:			(Restated)
Net income attributable to DXP Enterprises, Inc.	Net income attributable to DXP Enterprises, Inc.	$	8,490	$	8,479	Net income attributable to DXP Enterprises, Inc.	$	15,615	$	(26,187)
Less: net loss attributable to non-controlling interest	Less: net loss attributable to non-controlling interest	(401)		(124)		Less: net loss attributable to non-controlling interest	(590)		(233)
Net income	Net income	8,089		8,355		Net income	15,025		(26,420)
Reconciliation of net income to net cash provided (used in) by operating activities:	Reconciliation of net income to net cash provided (used in) by operating activities:					Reconciliation of net income to net cash provided (used in) by operating activities:
Depreciation	Depreciation	5,132		5,747		Depreciation	7,380		7,998
Amortization of intangible assets	Amortization of intangible assets	8,452		6,243		Amortization of intangible assets	12,690		9,296
Gain on sale of property and equipment	Gain on sale of property and equipment	(246)		—		Gain on sale of property and equipment	(246)		—
Provision for credit losses	Provision for credit losses	(637)		434		Provision for credit losses	(361)		788
Impairment and other charges						Impairment and other charges	—		48,401
Payment of contingent consideration liability in excess of acquisition-date fair value	Payment of contingent consideration liability in excess of acquisition-date fair value	(145)		(136)		Payment of contingent consideration liability in excess of acquisition-date fair value	(145)		(136)
Fair value adjustment on contingent consideration	Fair value adjustment on contingent consideration	—		25		Fair value adjustment on contingent consideration	—		13
Amortization of debt issuance costs	Amortization of debt issuance costs	854		937		Amortization of debt issuance costs	1,256		1,406
Stock compensation expense	Stock compensation expense	840		1,887		Stock compensation expense	1,354		2,870
Deferred income taxes	Deferred income taxes	1,068		188		Deferred income taxes	6,711		(6,464)
Net change in operating assets and liabilities	Net change in operating assets and liabilities	(7,201)		38,084		Net change in operating assets and liabilities	(20,833)		54,488
Net cash provided by operating activities	Net cash provided by operating activities	$	16,206	$	61,764	Net cash provided by operating activities	$	22,831	$	92,240

CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	Purchase of property and equipment	(1,526)		(5,133)		Purchase of property and equipment	(2,984)		(6,530)
Proceeds from the sale of property and equipment	Proceeds from the sale of property and equipment	1,297		123		Proceeds from the sale of property and equipment	1,297		123
Acquisition of business, net of cash acquired	Acquisition of business, net of cash acquired	(44,435)		(14,153)		Acquisition of business, net of cash acquired	(64,610)		(14,118)
Net cash used in investing activities	Net cash used in investing activities	$	(44,664)	$	(19,163)	Net cash used in investing activities	$	(66,297)	$	(20,525)

CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:					CASH FLOWS FROM FINANCING ACTIVITIES:
Principal debt payments	Principal debt payments	(1,650)		(16,250)		Principal debt payments	(2,475)		(26,875)
Issuance of Common Stock- shares sold in public market	Issuance of Common Stock- shares sold in public market	—		1,142		Issuance of Common Stock- shares sold in public market	—		1,142
Payment for contingent consideration liability	Payment for contingent consideration liability	(955)		(1,864)		Payment for contingent consideration liability	(955)		(1,864)
Dividends paid	Dividends paid	(45)		(45)		Dividends paid	(68)		(68)
Debt issuance costs						Debt issuance costs	—		(138)
Purchase of treasury stock	Purchase of treasury stock	(8,769)		—		Purchase of treasury stock	(8,769)		—
Payment for employee taxes withheld from stock awards	Payment for employee taxes withheld from stock awards	(585)		(116)		Payment for employee taxes withheld from stock awards	(637)		(139)
Net cash used in financing activities	Net cash used in financing activities	$	(12,004)	$	(17,133)	Net cash used in financing activities	$	(12,904)	$	(27,942)
Effect of foreign currency on cash	Effect of foreign currency on cash	303		(1,025)		Effect of foreign currency on cash	85		(721)
Net change in cash and restricted cash	Net change in cash and restricted cash	(40,159)		24,443		Net change in cash and restricted cash	(56,285)		43,052
Cash and restricted cash at beginning of period	Cash and restricted cash at beginning of period	119,419		54,326		Cash and restricted cash at beginning of period	119,419		54,326
Cash and restricted cash at end of period	Cash and restricted cash at end of period	$	79,260	$	78,769	Cash and restricted cash at end of period	$	63,134	$	97,378

Supplemental schedule of non-cash investing and financing activities:	Supplemental schedule of non-cash investing and financing activities:					Supplemental schedule of non-cash investing and financing activities:
Shares issued for the acquisition of CVI (Note 12)		$	8,859	$	—
Shares issued for acquisitions (Note 12)						Shares issued for acquisitions (Note 12)	$	11,140	$	—
Share repurchase agreement	Share repurchase agreement	$	20,405	$	—	Share repurchase agreement	$	20,405	$	—

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		Treasury stock		Non controlling interest		Accum other comp loss		Total equity			Series A preferred stock		Series B preferred stock		Common stock		Paid-in capital		Retained earnings		Treasury stock		Non controlling interest		Accum other comp loss		Total equity
Balance at March 31, 2020 (Restated)		$	1	$	15	$	175	$	160,695	$	221,693	$	—	$	1,084	$	(21,117)	$	362,546
Balance at June 30, 2020 (Restated)																				Balance at June 30, 2020 (Restated)	$	1	$	15	$	175	$	163,094	$	223,871	$	—	$	1,022	$	(19,722)	$	368,456
Preferred dividends paid	Preferred dividends paid	—		—		—		—		(22)		—		—		—		(22)		Preferred dividends paid	—		—		—		—		(23)		—		—		—		(23)
Compensation expense for restricted stock	Compensation expense for restricted stock	—		—		—		956		—		—		—		—		956		Compensation expense for restricted stock	—		—		—		983		—		—		—		—		983
Stock compensation expense		—						27		—		—		—		—		27
Tax related items for share based awards	Tax related items for share based awards	—		—		—		(22)		—		—		—		—		(22)		Tax related items for share based awards	—		—		—		(23)		—		—		—		—		(23)
Issuance of common stock sold in public markets, net of commissions and fees		—		—		—		1,142		—		—		—		—		1,142
Currency translation adjustment	Currency translation adjustment	—		—		—		296		(227)		—		—		1,395		1,464		Currency translation adjustment	—		—		—		—		—		—		—		(452)		(452)
Net income (As restated)	Net income (As restated)	—		—		—		—		2,427		—		(62)		—		2,365		Net income (As restated)	—		—		—		—		(34,666)		—		(109)		—		(34,775)
Balance at June 30, 2020 (Restated)		$	1	$	15	$	175	$	163,094	$	223,871	$	—	$	1,022	$	(19,722)	$	368,456
Balance at September 30, 2020 (Restated)																				Balance at September 30, 2020 (Restated)	$	1	$	15	$	175	$	164,054	$	189,182	$	—	$	913	$	(20,174)	$	334,166


		Series A preferred stock		Series B preferred stock		Common stock		Paid-in capital		Retained earnings		Treasury stock		Non controlling interest		Accum other comp loss		Total equity			Series A preferred stock		Series B preferred stock		Common stock		Paid-in capital		Retained earnings		Treasury stock		Non controlling interest		Accum other comp loss		Total equity
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	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	—		—		—		—		(45)		—		—		—		(45)		Preferred dividends paid	—		—		—		—		(68)		—		—		—		(68)
Compensation expense for restricted stock	Compensation expense for restricted stock	—		—		—		1,860		—		—		—		—		1,860		Compensation expense for restricted stock	—		—		—		2,843		—		—		—		—		2,843
Stock compensation expense	Stock compensation expense	—		—		—		27		—		—		—		—		27		Stock compensation expense	—		—		—		27		—		—		—		—		27
Tax related items for share based awards	Tax related items for share based awards	—		—		—		(116)		—		—		—		—		(116)		Tax related items for share based awards	—		—		—		(139)		—		—		—		—		(139)
Issuance of shares of common stock	Issuance of shares of common stock	—		—		1		1,999		—		—		—		—		2,000		Issuance of shares of common stock	—		—		1		1,999		—		—		—		—		2,000
Issuance of common stock sold in public markets, net of commissions and fees	Issuance of common stock sold in public markets, net of commissions and fees	—		—		—		1,142		—		—		—		—		1,142		Issuance of common stock sold in public markets, net of commissions and fees	—		—		—		1,142		—		—		—		—		1,142
Currency translation adjustment	Currency translation adjustment	—		—		—		296		(227)		—				232		301		Currency translation adjustment	—		—		—		296		(227)		—				(220)		(151)
Net income (As restated)	Net income (As restated)	—		—		—		—		8,479		—		(124)		—		8,355		Net income (As restated)	—		—		—		—		(26,187)		—		(233)		—		(26,420)
Balance at June 30, 2020 (Restated)		$	1	$	15	$	175	$	163,094	$	223,871	$	—	$	1,022	$	(19,722)	$	368,456
Balance at September 30, 2020 (Restated)																				Balance at September 30, 2020 (Restated)	$	1	$	15	$	175	$	164,054	$	189,182	$	—	$	913	$	(20,174)	$	334,166


		Series A preferred stock		Series B preferred stock		Common stock		Paid-in capital		Retained earnings		Treasury stock		Non controlling interest		Accum other comp loss		Total equity			Series A preferred stock		Series B preferred stock		Common stock		Paid-in capital		Retained earnings		Treasury stock		Non controlling interest		Accum other comp loss		Total equity
Balance at March 31, 2021 (Restated)		$	1	$	15	$	189	$	191,931	$	186,426	$	—	$	586	$	(16,736)	$	362,412
Balance at June 30, 2021																				Balance at June 30, 2021	$	1	$	15	$	194	$	203,562	$	194,523	$	(29,174)	$	397	$	(15,409)	$	354,109
Preferred dividends paid	Preferred dividends paid	—		—		—		—		(22)		—		—		—		(22)		Preferred dividends paid	—		—		—		—		(22)		—		—		—		(22)
Compensation expense for restricted stock	Compensation expense for restricted stock	—		—		—		460		—		—		—		—		460		Compensation expense for restricted stock	—		—		—		458		—		—		—		—		458
Stock compensation expense																				Stock compensation expense	—		—		—		56		—		—		—		—		56
Tax related items for share based awards	Tax related items for share based awards	—		—		—		(69)		—		—		—		—		(69)		Tax related items for share based awards	—		—		—		(51)		—		—		—		—		(51)
Issuance of shares of common stock	Issuance of shares of common stock	—		—		5		11,240		—		—		—		—		11,245		Issuance of shares of common stock	—		—		1		1,982		—		—		—		—		1,983
Currency translation adjustment	Currency translation adjustment	—		—		—		—		—		—		—		1,327		1,327		Currency translation adjustment	—		—		—		—		—		—		—		(2,129)		(2,129)
Purchase of treasury stock		—		—		—		—		—		(29,174)		—		—		(29,174)
Net income	Net income	—		—		—		—		8,119		—		(189)		—		7,930		Net income	—		—		—		—		7,125		—		(189)		—		6,936
Balance at June 30, 2021		$	1	$	15	$	194	$	203,562	$	194,523	$	(29,174)	$	397	$	(15,409)	$	354,109
Balance at September 30, 2021																				Balance at September 30, 2021	$	1	$	15	$	195	$	206,007	$	201,626	$	(29,174)	$	208	$	(17,538)	$	361,340


		Series A preferred stock		Series B preferred stock		Common stock		Paid-in capital		Retained earnings		Treasury stock		Non controlling interest		Accum other comp loss		Total equity			Series A preferred stock		Series B preferred stock		Common stock		Paid-in capital		Retained earnings		Treasury stock		Non controlling interest		Accum other comp loss		Total equity
Balance at December 31, 2020 (Restated)	Balance at December 31, 2020 (Restated)	$	1	$	15	$	189	$	192,068	$	186,078	$	—	$	798	$	(18,013)	$	361,136	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	—		—		—		—		(67)		—		—		—		(67)
Compensation expense for restricted stock	Compensation expense for restricted stock	—		—		—		840		—		—		—		—		840		Compensation expense for restricted stock	—		—		—		1,298		—		—		—		—		1,298
Stock compensation expense																				Stock compensation expense	—		—		—		56		—		—		—		—		56
Tax related items for share based awards	Tax related items for share based awards	—		—		—		(586)		—		—		—		—		(586)		Tax related items for share based awards	—		—		—		(637)		—		—		—		—		(637)
Issuance of shares of common stock	Issuance of shares of common stock	—		—		5		11,240		—		—		—		—		11,245		Issuance of shares of common stock	—		—		6		13,222		—		—		—		—		13,228
Currency translation adjustment	Currency translation adjustment	—		—		—		—		—		—		—		2,604		2,604		Currency translation adjustment	—		—		—		—		—		—		—		475		475
Purchase of treasury stock	Purchase of treasury stock	—		—		—		—		—		(29,174)		—		—		(29,174)		Purchase of treasury stock	—		—		—		—		—		(29,174)		—		—		(29,174)
Net income	Net income	—		—		—		—		8,490		—		(401)		—		8,089		Net income	—		—		—		—		15,615		—		(590)		—		15,025
Balance at June 30, 2021		$	1	$	15	$	194	$	203,562	$	194,523	$	(29,174)	$	397	$	(15,409)	$	354,109
Balance at September 30, 2021																				Balance at September 30, 2021	$	1	$	15	$	195	$	206,007	$	201,626	$	(29,174)	$	208	$	(17,538)	$	361,340

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 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 11 - 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/A for the year ended December 31, 2020. For a more complete discussion of our significant accounting policies and business practices, refer to the consolidated Annual Report on Form 10-K/A filed with the Securities and Exchange Commission on October 22, 2021. The results of operations for the ~~six~~nine months ended ~~June~~September 30, 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~~nine months ended ~~June~~September 30, 2021 and ~~June~~September 30, 2020, condensed consolidated balance sheets as of ~~June~~September 30, 2021 and December 31, 2020, condensed consolidated statements of cash flows for the ~~six~~nine months ended ~~June~~September 30, 2021 and ~~June~~September 30, 2020, and condensed consolidated statement of equity for the ~~six~~nine months ended ~~June~~September 30, 2021 and ~~June~~September 30, 2020. All such adjustments represent normal recurring items.

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

NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS

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.

In October 2021, the FASB issued Accounting Standards Update (ASU) 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to address diversity in practice on how an acquirer should recognize and measure revenue contracts acquired in a business combination. ASU 2021-08 will require an acquirer to recognize and measure contract assets acquired and contract liabilities assumed in a business combination in accordance with FASB Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers.

For the Company, ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The ASU should be applied prospectively to business combinations occurring on or after the effective date. Early adoption of ASU 2021-08 is permitted, including in an interim period. The Company expects the new Standard to have an impact for future acquisitions. From time to time the Company does acquire businesses that perform project-based work and therefore include Contract Assets and Liabilities.

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 operations and comprehensive income, equity and cash flows 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 an 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 errors 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 quarter ended ~~June~~September 30, 2020, 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 and the six~~nine months ended ~~June~~September 30, 2020:


		For the Three Months Ended June 30, 2020						For the Six Months Ended June 30, 2020							Nine Months Ended September 30, 2020
		As Previously						As Previously							As Previously
		Reported		Adjustments		As Restated		Reported		Adjustments		As Restated			Reported		Adjustments		As Restated
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS	CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS													CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Sales	Sales	$	251,401	0		$	251,401	$	552,384	0		$	552,384	Sales	$	772,577	$	—	$	772,577
Cost of sales	Cost of sales	181,705		(385)		181,320		398,703		486		399,189		Cost of sales	557,595		486		558,081
Gross profit	Gross profit	69,696		385		70,081		153,681		(486)		153,195		Gross profit	214,982		(486)		214,496
Selling, general and administrative costs	Selling, general and administrative costs	62,943		—		62,943		136,013		(1,275)		134,738		Selling, general and administrative costs	189,759		(1,275)		188,484
Income before income taxes	Income before income taxes	2,690		385		3,075		10,062		789		10,851		Income before income taxes	(34,856)		789		(34,067)
Provision for income taxes	Provision for income taxes	610		100		710		2,334		162		2,496		Provision for income taxes	(7,809)		162		(7,647)
Net income	Net income	$	2,080	$	285	$	2,365	$	7,728	$	627	$	8,355	Net income	$	(26,814)	$	627	$	(26,187)

Basic earnings per share	Basic earnings per share	$	0.12	0		$	0.14	$	0.44	0		$	0.48	Basic earnings per share	$	(1.52)	0		$	(1.47)

Diluted earnings per share	Diluted earnings per share	$	0.12	0		$	0.13	$	0.42	0		$	0.45	Diluted earnings per share	$	(1.52)	0		$	(1.47)


		For the Three Months Ended June 30, 2020						For the Six Months Ended June 30, 2020							Nine Months Ended September 30, 2020
		As previously						As previously							As previously
		Reported		Adjustments		As Restated		Reported		Adjustments		As Restated			Reported		Adjustments		As Restated
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME	CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME													CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Net income	Net income	$	2,080	$	285	$	2,365	$	7,728	$	627	$	8,355	Net income	$	(26,814)	$	627	$	(26,187)
Total comprehensive income	Total comprehensive income	$	3,475	$	285	$	3,760	$	7,960	$	627	$	8,587	Total comprehensive income	$	(27,267)	$	627	$	(26,640)

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~~were 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.

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 sheet as of December 31, 2020 on a condensed basis:


	As				As
BALANCE SHEET (AT DECEMBER 31, 2020):	Reported		Adjustments		Restated
Cash and restricted cash	$	117,444	$	1,975	$	119,419
Accounts Receivable	163,429		3,512		166,941
Inventory	97,071		—		97,071
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
Total Liabilities	$	503,995	$	3,000	$	506,995

Cumulative Translation Adjustment	(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

The table below presents the impact to Operating Cash Flows on a Condensed Basis as a result of the restatement for the period ended ~~June~~September 30, 2020:


		For the Six Months Ended June 30, 2020							Nine Months Ended September 30, 2020
		As Previously							As Previously
		Reported		Adjustments		As Restated			Reported		Adjustments		As Restated
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS							CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Net income	Net income	$	7,728	$	627	$	8,355	Net income	$	(27,047)	$	627	$	(26,420)
Reconciliation of net income to net cash provided by operating activities:	Reconciliation of net income to net cash provided by operating activities:							Reconciliation of net income to net cash provided by operating activities:
Changes in operating assets and liabilities	Changes in operating assets and liabilities	38,711		(627)		38,084		Changes in operating assets and liabilities	55,115		(627)		54,488
Net cash provided by operating activities	Net cash provided by operating activities	$	61,764	0		$	61,764	Net cash provided by operating activities	$	92,240	0		$	92,240

NOTE 5 – INVENTORIES

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


		June 30, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Finished goods	Finished goods	$	105,763	$	105,527	Finished goods	$	101,167	$	105,527
Work in process	Work in process	22,076		17,021		Work in process	21,657		17,021
Obsolescence reserve	Obsolescence reserve	(24,392)		(25,477)		Obsolescence reserve	(16,448)		(25,477)
Inventories	Inventories	$	103,447	$	97,071	Inventories	$	106,376	$	97,071

NOTE 6 – COSTS AND ESTIMATED PROFITS ON UNCOMPLETED CONTRACTS

Under our customized pump production and long-term water and wastewater project 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, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Costs incurred on uncompleted contracts	Costs incurred on uncompleted contracts	$	56,184	$	36,969	Costs incurred on uncompleted contracts	$	50,861	$	36,969
Estimated profits, thereon	Estimated profits, thereon	18,878		6,711		Estimated profits, thereon	16,693		6,711
Total	Total	75,062		43,680		Total	67,554		43,680
Less: billings to date	Less: billings to date	60,641		29,315		Less: billings to date	50,732		29,315
Net	Net	$	14,421	$	14,365	Net	$	16,822	$	14,365

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


		June 30, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Costs and estimated profits in excess of billings	Costs and estimated profits in excess of billings	$	16,718	$	18,459	Costs and estimated profits in excess of billings	$	17,714	$	18,459
Billings in excess of costs and estimated profits	Billings in excess of costs and estimated profits	(2,300)		(4,061)		Billings in excess of costs and estimated profits	(891)		(4,061)
Translation adjustment	Translation adjustment	3		(33)		Translation adjustment	(1)		(33)
Net	Net	$	14,421	$	14,365	Net	$	16,822	$	14,365

During the ~~six~~nine months ended ~~June~~September 30, 2021, ~~$3.8~~$3.9 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 7 – INCOME TAXES

Our effective tax rate from continuing operations was ~~17.4~~a tax benefit of 8.9 percent for the three months ended ~~June~~September 30, 2021 compared to a tax ~~expense~~benefit of ~~23.1~~22.5 percent for the three months ended ~~June~~September 30, 2020. Compared to the U.S. statutory rate for the three months ended ~~June~~September 30, 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 rate decreased by research and development tax credits and other tax credits. Compared to the U.S. statutory rate for the three months ended September 30, 2020, the effective tax rate was increased by state taxes, foreign taxes, and research and development tax credits and other tax credits and was partially offset by nondeductible expenses and uncertain tax positions recorded due to tax authorities' aggressive auditing of research and development tax credits. .

Our effective tax rate from continuing operations was a tax expense of 13.7 percent for the nine months ended September 30, 2021 compared to a tax benefit of 22.4 percent for the nine months ended September 30, 2020. Compared to the U.S. statutory rate for the nine months ended September 30, 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 tax credits. Compared to the U.S. statutory rate for the ~~three~~nine months ended ~~June~~September 30, 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.~~

~~Our effective tax rate from continuing operations~~credits and was a tax expense of 26.7 percent for the six months ended June 30, 2021 compared to a tax expense of 23.0 percent for the six months ended June 30, 2020. Compared to the U.S. statutory rate for the six months ended June 30, 2021, the effective tax rate was increasedpartially offset by ~~state taxes, foreign taxes,~~ nondeductible expenses and uncertain tax positions recorded due to tax ~~authorities’~~authorities' aggressive auditing of research and development tax credits. The effective tax was decreased by research and development tax credits and other tax credits. 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 expenses and was 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 8 – LONG-TERM DEBT

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


		June 30, 2021				December 31, 2020					September 30, 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	328,350		328,350		330,000		325,875		Term Loan B	327,525		325,887		330,000		325,875
Total long-term debt	Total long-term debt	328,350		328,350		330,000		325,875		Total long-term debt	327,525		325,887		330,000		325,875
Less: current portion	Less: current portion	(3,300)		(3,300)		(3,300)		(3,259)		Less: current portion	(3,300)		(3,284)		(3,300)		(3,259)
Long-term debt less current maturities	Long-term debt less current maturities	$	325,050	$	325,050	$	326,700	$	322,616	Long-term debt less current maturities	$	324,225	$	322,603	$	326,700	$	322,616

(1) Carrying value amounts do not include unamortized debt issuance costs of ~~$8.7~~$8.3 million and $9.6 million for ~~June~~September 30, 2021 and December 31, 2020, respectively.

Credit Agreements

On March 17, 2020, the Company entered into an Increase Agreement (the "Increase Agreement") that provided for a $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~~September 30, 2021, the Company had no amount outstanding under the ABL Revolver and had ~~$131.3~~$131.0 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~~September 30, 2021.

NOTE 9 - 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 June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
Basic:	Basic:			(Restated)				(Restated)		Basic:			(Restated)				(Restated)
Weighted average shares outstanding	Weighted average shares outstanding	19,291		17,735		19,239		17,719		Weighted average shares outstanding	18,710		17,790		19,060		17,743
Net income attributable to DXP Enterprises, Inc.	Net income attributable to DXP Enterprises, Inc.	$	8,119	$	2,427	$	8,490	$	8,479	Net income attributable to DXP Enterprises, Inc.	$	7,125	$	(34,666)	$	15,615	$	(26,187)
Convertible preferred stock dividend	Convertible preferred stock dividend	22		22		45		45		Convertible preferred stock dividend	23		23		68		68
Net income attributable to common shareholders	Net income attributable to common shareholders	$	8,097	$	2,405	$	8,445	$	8,434	Net income attributable to common shareholders	$	7,102	$	(34,689)	$	15,547	$	(26,255)
Per share amount	Per share amount	$	0.42	$	0.14	$	0.44	$	0.48	Per share amount	$	0.38	$	(1.95)	$	0.82	$	(1.47)

Diluted:	Diluted:									Diluted:
Weighted average shares outstanding	Weighted average shares outstanding	19,291		17,735		19,239		17,719		Weighted average shares outstanding	18,710		17,790		19,060		17,743
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	20,131		18,575		20,079		18,559		Total dilutive shares	19,550		17,790		19,900		17,743
Net income attributable to common shareholders	Net income attributable to common shareholders	$	8,097	$	2,405	$	8,445	$	8,434	Net income attributable to common shareholders	$	7,102	$	(34,689)	$	15,547	$	(26,255)
Convertible preferred stock dividend	Convertible preferred stock dividend	22		22		45		45		Convertible preferred stock dividend	23		—		68		—
Net income attributable to DXP Enterprises, Inc.	Net income attributable to DXP Enterprises, Inc.	$	8,119	$	2,427	$	8,490	$	8,479	Net income attributable to DXP Enterprises, Inc.	$	7,125	$	(34,689)	$	15,615	$	(26,255)
Per share amount	Per share amount	$	0.41	$	0.13	$	0.42	$	0.45	Per share amount	$	0.36	$	(1.95)	$	0.78	$	(1.47)

NOTE 10 - 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 11 - 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, repair and operating 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, re-manufactures pumps, manufactures branded private label pumps and provides products and process lines for the water and wastewater treatment industries. 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 June 30,																	Three Months Ended September 30,
		2021								2020									2021								2020
										(Restated)																	(Restated)
		SC		IPS		SCS		Total		SC		IPS		SCS		Total			SC		IPS		SCS		Total		SC		IPS		SCS		Total
Product sales1	Product sales1	$	185,489	$	—	$	35,068	$	220,557	$	144,286	$	—	$	32,988	$	177,274	Product sales1	$	187,302	$	—	$	36,213	$	223,515	$	143,767	$	—	$	29,360	$	173,127
Inventory services2	Inventory services2	—		—		4,263		4,263		—		—		4,086		4,086		Inventory services2	—		—		4,302		4,302		—		—		4,057		4,057
Staffing services3	Staffing services3	24,144		—		—		24,144		9,562		—		—		9,562		Staffing services3	25,237		—		—		25,237		21,133		—		—		21,133
Pump production and delivery4	Pump production and delivery4	—		36,727		—		36,727		—		60,479		—		60,479		Pump production and delivery4	—		36,440		—		36,440		—		21,876		—		21,876
Total Revenue	Total Revenue	$	209,633	$	36,727	$	39,331	$	285,691	$	153,848	$	60,479	$	37,074	$	251,401	Total Revenue	$	212,539	$	36,440	$	40,515	$	289,494	$	164,900	$	21,876	$	33,417	$	220,193
Income from operations	Income from operations	$	26,300	$	4,803	$	3,488	$	34,591	$	14,050	$	8,565	$	3,353	$	25,968	Income from operations	$	29,381	$	277	$	3,181	$	32,839	$	22,151	$	(2,913)	$	2,900	$	22,138


		Six Months Ended June 30,																	Nine Months Ended September 30,
		2021								2020									2021								2020
										(Restated)																	(Restated)
		SC		IPS		SCS		Total		SC		IPS		SCS		Total			SC		IPS		SCS		Total		SC		IPS		SCS		Total
Product sales1	Product sales1	$	350,831	$	—	$	66,845	$	417,676	$	314,081	$	—	$	77,140	$	391,221	Product sales1	$	538,134	$	—	$	103,058	$	641,192	$	457,848	$	—	$	106,500	$	564,348
Inventory services2	Inventory services2	—		—		8,459		8,459		—		—		8,311		8,311		Inventory services2	—		—		12,761		12,761		—		—		12,368		12,368
Staffing services3	Staffing services3	45,171		—		—		45,171		22,352		—		—		22,352		Staffing services3	70,408		—		—		70,408		43,485		—		—		43,485
Pump production and delivery4	Pump production and delivery4	—		59,972		—		59,972		—		130,500		—		130,500		Pump production and delivery4	—		96,411		—		96,411		—		152,376		—		152,376
Total Revenue	Total Revenue	$	396,002	$	59,972	$	75,304	$	531,278	$	336,433	$	130,500	$	85,451	$	552,384	Total Revenue	$	608,542	$	96,411	$	115,819	$	820,772	$	501,333	$	152,376	$	118,868	$	772,577
Income from operations	Income from operations	$	48,437	$	5,751	$	5,810	$	59,998	$	31,379	$	18,993	$	7,108	$	57,480	Income from operations	$	77,819	$	6,027	$	8,991	$	92,837	$	53,531	$	16,080	$	10,008	$	79,619

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

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

3Staffing services that are invoiced on a day-rate basis.

4Custom pump production and delivery 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 June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
				(Restated)				(Restated)					(Restated)				(Restated)
Operating income for reportable segments	Operating income for reportable segments	$	34,591	$	25,968	$	59,998	$	57,480	Operating income for reportable segments	$	32,839	$	22,138	$	92,837	$	79,619
Adjustment for:	Adjustment for:									Adjustment for:
Amortization of intangible assets	Amortization of intangible assets	4,306		3,046		8,452		6,243		Amortization of intangible assets	4,238		3,053		12,690		9,296
Impairment and other charges										Impairment and other charges	—		48,401		—		48,401
Corporate expenses	Corporate expenses	15,439		15,784		30,467		32,780		Corporate expenses	17,416		11,530		47,883		44,311
Income from operations	Income from operations	$	14,846	$	7,138	21,079		18,457		Income from operations	$	11,185	$	(40,846)	32,264		(22,389)
Interest expense	Interest expense	5,337		3,930		10,580		8,307		Interest expense	5,264		3,752		15,844		12,059
Other (income) expense, net	Other (income) expense, net	(105)		133		(535)		(701)		Other (income) expense, net	(450)		320		(985)		(381)
Income before income taxes	Income before income taxes	$	9,614	$	3,075	$	11,034	$	10,851	Income before income taxes	$	6,371	$	(44,918)	$	17,405	$	(34,067)

NOTE 12 - BUSINESS ACQUISITIONS

On April 30, 2021, the Company completed the acquisition of Carter & Verplanck, LLC (“CVI”), a distributor of products and services exclusively focused on serving the water and wastewater markets. The acquisition of CVI was funded with cash on hand as well as issuing DXP's common stock. The Company paid approximately $49.7 million in cash and stock. ~~For the six months ended June 30, 2021, CVI contributed sales of $5.2 million and net income of $1.1 million.~~ A majority of CVI's sales are project-based work under the percentage-of-completion accounting model. As a result, CVI has been included in the IPS segment. For the nine months ended September 30, 2021, CVI contributed sales of $9.8 million and net income of $1.1 million.

On July 1, 2021, the Company completed the acquisition of Process Machinery, Inc. (“PMI”), a leading distributor of pumps, mechanical seals, tank, filters and related process equipment that focuses on serving the chemical, power, pulp & paper, mining, metals and food processing industries. The Company paid approximately $9.6 million in cash, stock and future consideration. For the nine months ended September 30, 2021, PMI contributed sales of $2.3 million and net income of $240 thousand.

On September 20, 2021, the Company closed on the acquisition of Premier Water LLC (“Premier”).Premier is a leading distributor and provider of products and services exclusively focused on serving the water and wastewater treatment markets primarily in North and South Carolina.The Company paid approximately $5.8 million in cash and stock.

In aggregate, the acquisition-date fair value of the consideration transferred for the 3 businesses totaled $65.0 million, which consisted of the following:


Purchase Price Consideration (in millions)	Total Consideration

Cash payments	$	~~40.8~~53.6
Fair value of stock issued	~~8.9~~11.1
Future consideration	0.3
Total purchase price consideration	$	~~49.7~~65.0

The fair value of the approximately ~~352,000~~422,000 common shares issued was determined based on the closing market price of the Company’s common shares on the acquisition date, adjusted for holding restrictions following consummation.

The following represents the pro forma unaudited revenue and earnings as if each of the acquisitions had been included in the consolidated results of the Company for the full nine months period ending September 30, 2021 and 2020, respectively:


	Nine Months Ended September 30,
	2021		2020
	(in thousands/unaudited)
Revenue	$	841,333	$	788,937
Net income	$	15,870	$	(25,241)

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:


(In thousands)
~~Accounts receivable~~Cash	$	~~4,397~~34
Accounts receivable	5,011
Other receivables	1,291
Costs in excess of billings	~~2,484~~3,003
Non-compete agreements	~~730~~1,040
Customer relationships	~~10,676~~15,219
Goodwill	~~38,612~~47,203
Property and equipment	85214
Other assets	~~2,456~~2,460
Assets acquired	$	~~59,440~~75,475
Current liabilities assumed	~~(9,781)~~(10,134)
Contingent consideration	(301)
Net assets acquired	$	~~49,659~~65,040

The following represents the pro forma unaudited revenue and earnings as if CVI had been included in the consolidated results of the Company for the six months ended June 20, 2020 and 2021, respectively:

Six months Ended June 30,
2020 2021
(in thousands/unaudited)
Revenue $ 558,630 $ 536,576
Net income $ 7,938 $ 8,010

Of the ~~$50~~$63.5 million of acquired intangible assets, ~~$0.7~~$1.0 million was provisionally assigned to non-compete agreements that are subject to amortization over 5 years, coincident with the terms of the agreements. In addition, ~~$10.7~~$15.2 million was assigned to customer relationships, and will be amortized over a period of 8 years. The ~~$38.6~~goodwill total of $47.2 million ~~of goodwill was assigned to the Innovative Pumping Solutions segment. The goodwill recognized~~ is attributable primarily to expected synergies and the assembled workforce of ~~CVI. None of the goodwill is expected to be deductible for income tax purposes.~~each entity.

The fair value of accounts receivables acquired is ~~$4.4~~$5.0 million, which approximated book value.

The Company recognized less than ~~$200,000~~$300,000 of acquisition related costs that were expensed in the current period. These costs are included in the consolidated income statement in Selling, General and Administrative costs. The Company also recognized

an immaterial amount in costs associated with issuing the shares issued as consideration in the business combination. Those costs were deducted from the recognized proceeds of issuance within stockholders’ equity.

NOTE 13 - SHARE REPURCHASE

On May 12, 2021, the Company announced that its Board of Directors authorized a share repurchase program (the “program”) under which up to $85.0 million or 1.5 million shares of its outstanding common stock may be acquired in the open market over the next 24 months at the discretion of management. During the ~~three and six~~nine months ended ~~June~~September 30, 2021, the Company ~~repurchased~~repurchase 1.0 million shares of common stock for $29.2 million at an average price of $28.77 per share.

Total consideration paid to repurchase the shares was recorded in shareholders’ equity as treasury shares. Such consideration was funded with existing cash balances and an agreement to pay sellers over 4 equal installments beginning on June 15, 2021. The remaining 3 installments totaling $20.4 million were included in other current liabilities as of ~~June~~September 30, 2021.


		Three Months Ended June 30,		Six Months Ended June 30,				Three Months Ended September 30,		Nine Months Ended September 30,
(in millions, except per share data)	(in millions, except per share data)	2021			2021		(in millions, except per share data)	2021			2021
Total number of shares purchased	Total number of shares purchased	1.0			1.0		Total number of shares purchased	—			1.0
Amount paid	Amount paid	$	29.2		$	29.2	Amount paid	$	—		$	29.2
Average price paid per share	Average price paid per share	$	28.77		$	28.77	Average price paid per share	$	—		$	28.77

~~NOTE 14 - SUBSEQUENT EVENTS~~

On July 1, 2021, the Company completed the acquisition of Process Machinery, LLC (“Process Machinery”), a distributor of pumps, mechanical seals, tank, filters and related process equipment that focuses on serving the chemical, power, pulp & paper, mining, metals and food processing industries. The acquisition of Process Machinery was funded with cash on hand as well as issuing DXP's common stock. The Company paid approximately $10 million in cash and stock.

In September 2021, the Company completed the acquisition of Premier Water, a distributor and provider of products and services exclusively focused on serving the water and wastewater treatment markets in North and South Carolina.The acquisition was also funded with a combination of cash on hand and stock. The Company paid approximately $6 million.

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~~nine months ended ~~June~~September 30, 2021 should be read in conjunction with our previous Annual Report on Form 10-K/A and our Quarterly Reports on Form 10-Q, and the consolidated financial statements and notes thereto included in such reports. The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP").

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this "Report") contains statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements include without limitation those about the Company’s expectations regarding the impact of the COVID-19 pandemic and the impact of low commodity prices of oil and gas; the Company’s business, the Company’s future profitability, cash flow, liquidity, and growth. Such forward-looking statements can be identified by the use of forward-looking terminology such as "believes", "expects", "may", "might", "estimates", "will", "should", "could", "would", "suspect", "potential", "current", "achieve", "plans" or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. Any such forward-looking statements are not guarantees of future performance and may involve significant risks and uncertainties, and actual results may vary materially from those discussed in the forward-looking statements or historical performance as a result of various factors. These factors include the effectiveness of management's strategies and decisions, our ability to implement our internal growth and acquisition growth strategies, general economic and business conditions specific to our primary customers, changes in government regulations, our ability to effectively integrate businesses we may acquire, new or modified statutory or regulatory requirements, availability of materials and labor, inability to obtain or delay in obtaining government or third-party approvals and permits, non-performance by third parties of their contractual obligations, unforeseen hazards such as weather conditions, acts of 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", in our Annual Report on Form 10-K/A filed with the Securities and Exchange Commission on 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

General

DXP Enterprises, Inc. is a business-to-business distributor of maintenance, repair and operating and production ("MROP") products and services to a variety of customers in different end markets primarily across North America. Additionally, we fabricate, remanufacture and assemble custom pump packages along with manufacturing branded private label pumps.

COVID-19 Pandemic Impact

The pandemic continued to have a significant impact on our business for the ~~six~~nine months ended ~~June~~September 30, 2021. The marketplace broadly, and the Company specifically, continued to operate with certain modifications to balance re-opening with employee and customer safety. However, most of the markets in which we operate continued to normalize and re-open. This improved the outlook of the manufacturing and industrial 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.

The COVID-19 pandemic caused significant disruptions in the U.S. and global markets, and the full extent of the impacts is still unknown and will depend on a number of developments, including any continued spread of the virus and its variants, the availability of and use of vaccines, and the impact of governmental measures to combat the spread of the virus (such as mask mandates or social distancing requirements) and to promote economic stability and recovery. The initial recovery from the

COVID-19 pandemic has been accompanied by a resurgence in demand as industries re-open, which is currently straining global supply chains, raw material and labor availability, and transportation efficiency. DXP’s businesses and its major facilities have remained operational during the pandemic as customers relied on DXP’s products and services to keep their businesses up and running.

While the COVID-19 pandemic continues to impact global markets and the needs of customers, employees, suppliers and communities continue to change, the Company’s efforts and business plans will evolve accordingly. DXP is focused on serving customers and communities in addressing the pandemic and providing products to assist in the ongoing recovery, supporting the needs and safety of employees and ensuring the Company continues to operate with a strong financial position. As more vaccine is distributed and mask mandates evolve, the Company continues to monitor and refine its product assortment and actions to support customers’ return to regular ~~operations.The~~operations. 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.

As of the end of the ~~second~~third quarter of 2021, we have remained undrawn on our $135 million bank revolver; and it remains available for use in the event a need arises. In response to easing restrictions and the continued vaccination efforts, we continue to actively monitor the situation and may take further actions that alter our 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 shareholders. While we are unable to determine or predict the nature, duration, or scope of the overall impact the COVID-19 pandemic will have 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 recovery.

Matters Affecting Comparability

There were 6364 business days in the three months ended ~~June~~September 30, 2021 and ~~June~~September 30, 2020. There were ~~126~~190 business days in the ~~six~~nine months ended ~~June~~September 30, 2021 and ~~127~~191 business days in the ~~six~~nine months ended ~~June~~September 30, 2020.

Outlook

Service Centers & Supply Chain Services Segments

The replacement and mission-critical nature of our products and services within the Company's Service Centers and Supply Chain Services business segments and industrial and manufacturing environments and processes drives a demand and outlook that are correlated with global, national and regional industrial production, capacity utilization and long-term GDP growth. Economic conditions remain uncertain with regard to COVID-19 and its impact on various end markets, however, recent order activity has begun to improve as markets strengthened and gained greater visibility to vaccine roll-out strategies in various regions. In the ~~second~~third quarter of 2021 we had approximately ~~$249.0~~$253.1 million in sales in our Service Centers and Supply Chain Services segment, an increase of approximately ~~30.4~~27.6 percent over the ~~the second~~third quarter of 2020. While the Company continues to expect choppiness as the economy gradually gains confidence with COVID-19 vaccines, we expect financial results to continually improve with interim periods of potential setback.

Innovative Pumping Solutions Segment

To date, the Company's Innovative Pumping Solutions segment has been able to absorb the pandemic with small workforce reductions or furloughs, which positions the Company for accelerated growth once recovery is clear within Innovative Pumping Solutions. The oil and gas industry continues to be impacted by the COVID-19 pandemic, along with other industry specific factors including environmental concerns and issues.

In ~~the first half of~~ 2021, we began to see an improvement in the demand for oil and natural gas as the roll out of the COVID-19 vaccinations gradually improved around the globe and pandemic restrictions eased. The increasing optimism related to demand recovery has led to higher commodity prices and although demand levels remain below pre-pandemic levels, there is growing confidence of returning to 2019 levels in the coming years. Also, contributing to the improvement in oil prices has been cooperation within OPEC to implement production cuts over the last year; however, it was recently announced that OPEC intends to increase production beginning in August 2021, that will continue into late 2022 to match increasing demand expectations. Demand recovery could still possibly slow or pause as a result of additional waves of pandemic outbreak or heightened pandemic control measures. Over the longer term, we could also experience a structural shift in the global economy and its demand for oil and natural gas as a result of changes in the way people work, travel and interact.

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.


		Three Months Ended June 30,									Three Months Ended September 30,
		2021		%		2020		%			2021		%		2020		%
						(Restated)									(Restated)
Sales	Sales	$	285,691	100.0	%	$	251,401	100.0	%	Sales	$	289,494	100.0	%	$	220,193	100.0	%
Cost of sales	Cost of sales	200,413		70.2	%	181,320		72.1	%	Cost of sales	202,551		70.0	%	158,892		72.2	%
Gross profit	Gross profit	$	85,278	29.8	%	$	70,081	27.9	%	Gross profit	$	86,943	30.0	%	$	61,301	27.8	%
Selling, general and administrative expenses	Selling, general and administrative expenses	70,432		24.7	%	62,943		25.0	%	Selling, general and administrative expenses	75,758		26.2	%	53,746		24.4	%
Impairment and other charges										Impairment and other charges	—		—	%	48,401		30.5	%
Income from operations	Income from operations	$	14,846	5.2	%	$	7,138	2.8	%	Income from operations	$	11,185	3.9	%	$	(40,846)	(18.6)	%
Other (income) expense, net	Other (income) expense, net	(105)		—	%	133		0.1	%	Other (income) expense, net	(450)		(0.2)	%	320		0.1	%
Interest expense	Interest expense	5,337		1.9	%	3,930		1.6	%	Interest expense	5,264		1.8	%	3,752		1.7	%
Income before income taxes	Income before income taxes	$	9,614	3.4	%	$	3,075	1.2	%	Income before income taxes	$	6,371	2.2	%	$	(44,918)	(20.4)	%
Provision for income taxes	Provision for income taxes	1,684		0.6	%	710		0.3	%	Provision for income taxes	(565)		(0.2)	%	(10,143)		(4.6)	%
Net income	Net income	$	7,930	2.8	%	$	2,365	0.9	%	Net income	$	6,936	2.4	%	$	(34,775)	(15.8)	%
Net loss attributable to noncontrolling interest	Net loss attributable to noncontrolling interest	(189)		—		(62)		—		Net loss attributable to noncontrolling interest	(189)		—		(109)		—
Net income attributable to DXP Enterprises, Inc.	Net income attributable to DXP Enterprises, Inc.	$	8,119	2.8	%	$	2,427	1.0	%	Net income attributable to DXP Enterprises, Inc.	$	7,125	2.5	%	$	(34,666)	(15.7)	%
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	Basic earnings per share	0.42				$	0.14			Basic earnings per share	0.38				$	(1.95)
Diluted earnings per share	Diluted earnings per share	0.41				$	0.13			Diluted earnings per share	0.36				$	(1.95)

Three Months Ended ~~June~~September 30, 2021 compared to Three Months Ended ~~June~~September 30, 2020

SALES. Sales for the three months ended ~~June~~September 30, 2021 increased ~~$34.3~~$69.3 million, or ~~13.6~~31.5 percent, to approximately ~~$285.7~~$289.5 million from ~~$251.4~~$220.2 million for the prior year's corresponding period. Sales from businesses acquired in December 2020 and ~~April~~in 2021 accounted for ~~$37.7~~$37.9 million of the sales for the three months ended ~~June~~September 30, 2021. This overall sales increase is the result of an increase in sales in our SC, IPS and SCS segments of ~~$55.8~~$47.6 million, $14.6 million and ~~$2.3~~$7.1 million, ~~partially offset by a decrease in sales of $23.8 million in our IPS segment.~~respectively. The fluctuations in sales are further explained in our business segment discussions below.

Three Months Ended June 30,
2021 2020 Change Change%
Sales by Business Segment (in thousands, except change %)
Service Centers $ 209,633 $ 153,848 $ 55,785 36.3 %
Innovative Pumping Solutions 36,727 60,479 (23,752) (39.3) %
Supply Chain Services 39,331 37,074 2,257 6.1 %
Total DXP Sales $ 285,691 $ 251,401 $ 34,290 13.6 %


	Three Months Ended September 30,
	2021		2020		Change		Change%
Sales by Business Segment	(in thousands, except change %)
Service Centers	$	212,539	$	164,900	$	47,639	28.9	%
Innovative Pumping Solutions	36,440		21,876		14,564		66.6	%
Supply Chain Services	40,515		33,417		7,098		21.2	%
Total DXP Sales	$	289,494	$	220,193	$	69,301	31.5	%

Service Centers segment. Sales for the SC segment increased by approximately ~~$55.8~~$47.6 million, or ~~36.3~~28.9 percent for the three months ended ~~June~~September 30, 2021 compared to the prior year's corresponding period. Excluding ~~$32.5~~$30.9 million of ~~second~~third quarter 2021 ~~SC segment~~ sales from businesses acquired in December 2020, Service Centers segment sales for the ~~second~~third quarter increased ~~$23.3~~$16.7 million, or ~~15.1~~10.1 percent from the prior year's corresponding period. This sales increase is primarily the result of increased sales of rotating equipment, metal working, and bearings and power transmission products to customers engaged in variety of markets compared due to the negative economic impacts of the COVID-19 pandemic on 2020 sales results.

Innovative Pumping Solutions segment. Sales for the IPS segment ~~decreased~~increased by ~~$23.8~~$14.6 million, or ~~39.3~~66.6 percent, for the three months ended ~~June~~September 30, 2021 compared to the prior year's corresponding period. Excluding ~~$5.2~~$6.9 million of ~~second~~third quarter 2021 IPS segment sales from ~~a business~~businesses acquired in ~~April~~ 2021, IPS segment sales for the ~~second~~third quarter ~~decreased $28.9~~increased $7.6 million, or ~~47.8~~34.9 percent, from the prior year's corresponding period. This ~~decrease~~increase was primarily the result of ~~a decrease~~an increase in the capital spending by oil and gas producers and related businesses stemming from ~~a decrease in U.S. crude oil production previously announced due to~~ the negative economic impacts of the COVID-19 ~~pandemic.~~pandemic on 2020 sales results.

Supply Chain Services segment. Sales for the SCS segment increased by ~~$2.3~~$7.1 million, or ~~6.1%~~21.2%, for the three months ended ~~June~~September 30, 2021, compared to the prior year's corresponding period. The improved sales is primarily related to increased sales to customers in the food & beverage, general manufacturing and aerospace industries, compared to the negative economic impacts of the COVID-19 pandemic on 2020 sales results.

GROSS PROFIT. Gross profit as a percentage of sales for the three months ended ~~June~~September 30, 2021 increased by approximately ~~197~~219 basis points from the prior year's corresponding period. Excluding the impact of the businesses acquired, gross profit as a percentage of sales ~~increased~~decreased by approximately ~~175~~453 basis points. The ~~increase~~decrease in the gross profit percentage excluding the businesses acquired is primarily the result of an approximate ~~a 253~~726 basis point ~~increase~~decrease in the gross profit percentage in our SC segment 19and a 55 basis point decrease in the gross profit percentage in our SCS segment partially offset by an 928 basis point increase in the gross profit percentage in our IPS ~~segment, and a 11 basis point decrease in the gross profit percentage in our SCS segment.~~segment..

Service Centers segment. As a percentage of sales, the ~~second~~third quarter gross profit percentage for the SC increased approximately ~~247~~183 basis points. Adjusting for the businesses acquired, gross profit as a percentage of sales ~~increased~~decreased approximately ~~253~~726 basis points from the prior year's corresponding period. This was primarily aswas a result of volume ~~increases~~decreases and product mix. Gross profit for the Service Centers segment, excluding businesses acquired, ~~increased $11.1~~decreased $8.2 million, or ~~25.4~~16.5 percent, during the ~~second~~third quarter of 2021 compared to the prior year’s corresponding period. ~~The increase in gross profit is primarily the result of the improvement in sales due to the items discussed above.~~

Innovative Pumping Solutions segment. As a percentage of sales, the ~~second~~third quarter gross profit percentage for the IPS segment increased approximately ~~129~~969 basis points. Adjusting for the business acquired, gross profit as a percentage of sales increased approximately 19928 basis points from the prior year's corresponding period. The increase in gross profit percentage is primarily due to a mix shift (higher margin international work and domestic water and wastewater projects). Gross profit dollars ~~decreased $8.2~~increased $4.0 million, excluding business acquired, primarily as a result of ~~a decrease~~an increase in ~~utilization~~project work as a result of ~~significantly reduced~~an increase in capital ~~expenditure budgets~~spending by our customers ~~associated with~~compared to the negative economic impacts of the COVID-19 ~~pandemic.~~pandemic in 2020.

Supply Chain Services segment. Gross profit as a percentage of sales for the SCS segment decreased approximately 1155 basis points compared to the prior year's corresponding period. Gross profit for the ~~second~~third quarter of 2021 increased ~~$0.5~~$1.5 million or ~~5.6%~~18.5% compared to the prior year's corresponding ~~period, primarily the result of the improvement in sales due to the items discussed above.~~period.

SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). Selling, general and administrative expense for the three months ended ~~June~~September 30, 2021 increased by approximately ~~$7.5~~$22.0 million, or ~~11.9%~~41.0%, to ~~$70.4~~$75.8 million from ~~$62.9~~$53.7 million for the prior year's corresponding period. Selling, general and administrative expense from businesses acquired accounted for ~~$6.0~~$7.2 million. Excluding expenses from businesses acquired, SG&A for the quarter increased by ~~$1.5~~$14.8 million, or ~~2.3%~~27.6%. The increase in SG&A excluding businesses acquired is primarily the result of increased payroll, incentive compensation and related taxes and 401(k) expenses as a result of increased business activity associated with recovery from the negative economic impacts of the COVID-19 ~~pandemic.~~pandemic in 2020.

OPERATING INCOME. Operating income for the ~~second~~third quarter of 2021 increased by ~~$7.7~~$52.0 million to ~~$14.8~~$11.2 million, from ~~$7.1~~an operating loss of $40.8 million in the prior year's corresponding period. This increase in operating income is primarily related to ~~the above mentioned increase~~an impairment and other charges of $48.4 million in ~~sales and profitability~~2020 with ~~SC and IPS.~~no comparable activity in 2021.

INTEREST EXPENSE. Interest expense for the ~~second~~third quarter of 2021 increased ~~$1.4~~$1.5 million compared with the prior year's corresponding period primarily due to a higher principal balance for the three months ended ~~June~~September 30, 2021 compared to the prior year's corresponding period as a result of the Company entering into a new term loan in December 2020. This was partially offset by lower LIBOR rates for the three months ended ~~June~~September 30, 2021.

INCOME TAXES. Our effective tax rate from continuing operations was a tax ~~expense~~benefit of ~~17.4~~8.9 percent for the three months ended ~~June~~September 30, 2021 compared to a tax expense of ~~23.1~~22.5 percent for the three months ended ~~June~~September 30, 2020. Compared to the U.S. statutory rate for the three months ended ~~June~~September 30, ~~2020,~~2021, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions ~~which required an increase in reserves.~~recorded due to tax authorities’ aggressive auditing of research and development tax credits. The effective tax rate was ~~partially offset~~decreased by research and development tax credits and other tax credits. Compared to the U.S. statutory rate for the three months ended September 30, 2020, the effective tax rate was increased by state taxes, foreign taxes, and research and development tax credits and other tax credits. The effective tax rate was decreased by nondeductible expenses and uncertain tax positions recorded due to tax authorities' aggressive auditing of research and development tax credits.


		Six Months Ended June 30,									Nine Months Ended September 30,
		2021		%		2020		%			2021		%		2020		%
						(Restated)									(Restated)
Sales	Sales	$	531,278	100.0	%	$	552,384	100.0	%	Sales	$	820,772	100.0	%	$	772,577	100.0	%
Cost of sales	Cost of sales	374,370		70.5	%	399,189		72.3	%	Cost of sales	576,921		70.3	%	558,081		72.2	%
Gross profit	Gross profit	$	156,908	29.5	%	$	153,195	27.7	%	Gross profit	$	243,851	29.7	%	$	214,496	27.8	%
Selling, general and administrative expenses	Selling, general and administrative expenses	135,829		25.6	%	134,738		24.4	%	Selling, general and administrative expenses	211,587		25.8	%	188,484		24.4	%
Impairment and other charges										Impairment and other charges	—		—	%	48,401		8.7	%
Income from operations	Income from operations	$	21,079	4.0	%	$	18,457	3.3	%	Income from operations	$	32,264	3.9	%	$	(22,389)	(2.9)	%
Other (income) expense, net	Other (income) expense, net	(535)		(0.1)	%	(701)		(0.1)	%	Other (income) expense, net	(985)		(0.1)	%	(381)		—	%
Interest expense	Interest expense	10,580		2.0	%	8,307		1.5	%	Interest expense	15,844		1.9	%	12,059		1.6	%
Income before income taxes	Income before income taxes	$	11,034	2.1	%	$	10,851	2.0	%	Income before income taxes	$	17,405	2.1	%	$	(34,067)	(4.4)	%
Provision for income taxes	Provision for income taxes	2,945		0.6	%	2,496		0.5	%	Provision for income taxes	2,380		0.3	%	(7,647)		(1.0)	%
Net income	Net income	$	8,089	1.5	%	$	8,355	1.5	%	Net income	$	15,025	1.8	%	$	(26,420)	(3.4)	%
Net loss attributable to noncontrolling interest	Net loss attributable to noncontrolling interest	(401)		—		(124)		—	%	Net loss attributable to noncontrolling interest	(590)		—		(233)		—	%
Net income attributable to DXP Enterprises, Inc.	Net income attributable to DXP Enterprises, Inc.	$	8,490	1.6	%	$	8,479	1.5	%	Net income attributable to DXP Enterprises, Inc.	$	15,615	1.9	%	$	(26,187)	(3.4)	%
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	Basic earnings per share	$	0.44			$	0.48			Basic earnings per share	$	0.82			$	(1.47)
Diluted earnings per share	Diluted earnings per share	$	0.42			$	0.45			Diluted earnings per share	$	0.78			$	(1.47)

~~Six~~Nine Months Ended ~~June~~September 30, 2021 compared to ~~Six~~Nine Months Ended ~~June~~September 30, 2020

SALES. Sales for the ~~six~~nine months ended ~~June~~September 30, 2021 ~~decreased $21.1~~increased $48.2 million, or ~~3.8~~6.2 percent, to approximately ~~$531.3~~$820.8 million from ~~$552.4~~$772.6 million for the prior year's corresponding period. Sales from businesses acquired since December 2020 accounted for ~~$66.1~~$104.0 million of the sales for the ~~six~~nine months ended ~~June~~September 30, 2021. This sales ~~decrease~~increase is the result of a an increase in sales in our SC segments of $107.2 million. This was partially offset by a decrease in sales in our IPS and SCS segments of ~~$70.5~~$56.0 million and ~~$10.1~~$3.0 million. ~~This was partially offset by an increase of $59.6 million in SC.~~ The fluctuations in sales are further explained in our business segment discussions below.


		Six Months Ended June 30,									Nine Months Ended September 30,
		2021		2020		Change		Change%			2021		2020		Change		Change%
Sales by Business Segment	Sales by Business Segment	(in thousands, except change%)								Sales by Business Segment	(in thousands, except change%)
Service Centers	Service Centers	396,002		336,433		$	59,569	17.7	%	Service Centers	608,542		501,333		$	107,209	21.4	%
Innovative Pumping Solutions	Innovative Pumping Solutions	59,972		130,500		(70,528)		(54.0)	%	Innovative Pumping Solutions	96,411		152,376		(55,965)		(36.7)	%
Supply Chain Services	Supply Chain Services	75,304		85,451		(10,147)		(11.9)	%	Supply Chain Services	115,819		118,868		(3,049)		(2.6)	%
Total DXP Sales	Total DXP Sales	$	531,278	$	552,384	$	(21,106)	(3.8)	%	Total DXP Sales	$	820,772	$	772,577	$	48,195	6.2	%

Service Centers segment. Sales for the SC segment increased by ~~$59.6~~$107.2 million, or ~~17.7~~21.4 percent for the ~~six~~nine months ended ~~June~~September 30, 2021 compared to the prior year's corresponding period. Excluding ~~$60.9~~$91.8 million of Service Center segment sales for the ~~six~~nine months ended ~~June~~September 30, 2021 from businesses acquired, SC segment sales ~~decreased $1.4~~increased $15.4 million, or ~~0.4~~3.1 percent from the prior year's corresponding period. This sales ~~decrease~~increase is primarily the result of ~~decreased~~increased sales of metal working, safety services and bearings to customers engaged in the OEM oil and gas markets in connection with ~~decreased~~increased capital spending by oil and gas producers.

Innovative Pumping Solutions segment. Sales for the IPS segment decreased by ~~$70.5~~$56.0 million, or ~~54.0~~36.7 percent for the ~~six~~nine months ended ~~June~~September 30, 2021 compared to the prior year's corresponding period. Excluding ~~$5.2~~$12.1 million of IPS segment sales for the ~~six~~nine months ended ~~June~~September 30, 2021 from ~~a business~~businesses acquired, IPS segment sales decreased ~~$75.7~~$68.1 million, or ~~58.0~~44.7 percent from 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.~~COVID-19 beginning in the second quarter of 2020. The current level of IPS sales activity could continue during the remainder of ~~2021.~~2021, although recoveries in oil production activity and oil prices should increase spending.

Supply Chain Services segment. Sales for the SCS segment decreased by ~~$10.1~~$3.0 million, or ~~11.9~~2.6 percent, for the ~~six~~nine months ended ~~June~~September 30, 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 economic impacts of the COVID-19 pandemic.

GROSS PROFIT. Gross profit as a percentage of sales for the ~~six~~nine months ended ~~June~~September 30, 2021 increased by approximately ~~180~~195 basis points from the prior year's corresponding period. Excluding the impact of the businesses acquired, gross profit as a percentage of sales ~~increased~~decreased by approximately ~~158~~56 basis points. The increase in the gross profit percentage is primarily the result of an approximate ~~270~~246 basis point increase in the gross profit percentage in our IPS segment ~~and~~offset by a ~~182~~134 basis point ~~increase~~decrease in the gross profit percentage in our SC segment, excluding businesses acquired. Additionally, a 201 basis point increase in the gross profit percentage in our SCS segment contributed to the increase.

Service Centers segment. As a percentage of sales, the ~~six~~nine months ended ~~June~~September 30, 2021 gross profit percentage for the Service Centers increased approximately ~~187~~189 basis points from the prior year's corresponding period. This was primarily the result of increased sales of rotating equipment and bearings and power transmission products to customers engaged in non-oil and gas ~~markets.~~markets as well as the positive impact of the businesses acquired.

Innovative Pumping Solutions segment. As a percentage of sales, the ~~six~~nine months ended ~~June~~September 30, 2021 gross profit percentage for the IPS segment increased approximately ~~314~~274 basis points from the prior year's corresponding period. The increase in gross profit percentage is primarily 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 ~~$18.4~~$12.5 million, primarily as a result of significantly reduced capital expenditure budgets by our customers associated with the negative economic impacts of the COVID-19 pandemic.

Supply Chain Services segment. Gross profit as a percentage of sales increased approximately 201 basis points, compared to the prior year's corresponding period. Gross profit for the ~~second quarter of~~nine months ended September 30, 2021 decreased ~~$2.2~~$0.7 million or ~~11.1~~2.5 percent compared to the prior year's corresponding period, primarily the result of the decline in sales due to the items discussed above.

SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). Selling, general and administrative expense for the ~~six~~nine months ended ~~June~~September 30, 2021 ~~decreased~~increased by approximately ~~$1.1~~$23.1 million, or ~~0.8~~12.3 percent, to ~~$135.8~~$211.6 million from ~~$134.7~~$188.5 million for the prior year's corresponding period. Selling, general and administrative expense from businesses acquired accounted for ~~$10.9~~$18.1 million. Excluding expenses from businesses acquired, SG&A for the ~~six~~nine months ended ~~June~~September 30, 2021 ~~decreased~~increased by ~~$9.8~~$5.0 million, or ~~7.3~~2.7 percent. The ~~decrease~~increase in SG&A excluding businesses acquired is the result of ~~decreased~~increased payroll, incentive compensation and related taxes and 401(k) expenses as a result of ~~decreased~~increased business activity in 2021 and cost reduction actions associated with COVID-19 and depressed demand in oil and gas ~~markets.~~markets in 2020.

OPERATING INCOME. Operating income for the ~~six~~nine months ended ~~June~~September 30, 2021 increased by ~~$2.6~~$54.7 million or ~~14.2%~~244.1% to ~~$21.1~~$32.3 million from ~~$18.5~~an operating loss of $22.4 million in the prior year's corresponding period. This increase in operating income is primarily related to ~~the items discussed above.~~an impairment and other charges of $48.4 million in 2020 with no comparable activity in 2021.

INTEREST EXPENSE. Interest expense for the ~~six~~nine months ended ~~June~~September 30, 2021 increased ~~$2.3~~$3.8 million compared with the prior year's corresponding period primarily due to a higher principal balance for the ~~six~~nine months ended ~~June~~September 30, 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 for the ~~six~~nine months ended ~~June~~September 30, 2021.

INCOME TAXES. Our effective tax rate from continuing operations was a tax expense of ~~26.7~~13.7 percent for the ~~six~~nine months ended ~~June~~September 30, 2021 compared to a tax ~~expense~~benefit of ~~23.0~~22.4 percent for the ~~six~~nine months ended ~~June~~September 30, 2020. Compared

to the U.S. statutory rate for the ~~six~~nine months ended ~~June~~September 30, ~~2020,~~2021, the effective tax rate was increased by state taxes, foreign taxes, nondeductible expenses, and uncertain tax positions ~~which required an increase in reserves.~~recorded due to tax authorities’ aggressive auditing of research and development tax credits. The effective tax rate was ~~partially offset~~decreased by research and development tax credits and other tax ~~credits..~~credits. Compared to the U.S. statutory rate for the nine months ended September 30, 2020, the effective tax rate was increased by state taxes, foreign taxes, and research and development tax credits and other tax credits and was partially offset by nondeductible expenses and uncertain tax positions recorded due to tax authorities' aggressive auditing of research and development tax credits.

LIQUIDITY AND CAPITAL RESOURCES

General Overview

As of ~~June~~September 30, 2021, we had cash and restricted cash of ~~$79.3~~$63.1 million and credit facility availability of ~~$131.3~~$131.0 million. We have a $135.0 million asset-based loan facility, partially offset by letters of credit of ~~$3.7~~$4.0 million, that is due to mature in August 2022, under which we had no borrowings outstanding as of ~~June~~September 30, 2021 and a Term Loan B with ~~$328.4~~$327.5 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,					Nine Months Ended September 30,
		2021		2020			2021		2020
Net Cash Provided by (Used in):	Net Cash Provided by (Used in):					Net Cash Provided by (Used in):
Operating Activities	Operating Activities	$	16,206	$	61,764	Operating Activities	$	22,831	$	92,240
Investing Activities	Investing Activities	(44,664)		(19,163)		Investing Activities	(66,297)		(20,525)
Financing Activities	Financing Activities	(12,004)		(17,133)		Financing Activities	(12,904)		(27,942)
Effect of Foreign Currency	Effect of Foreign Currency	303		(1,025)		Effect of Foreign Currency	85		(721)
Net Change in Cash	Net Change in Cash	$	(40,159)	$	24,443	Net Change in Cash	$	(56,285)	$	43,052

Operating Activities

The Company generated ~~$16.2~~$22.8 million of cash in operating activities during the ~~six~~nine months ended ~~June~~September 30, 2021 compared to ~~$61.8~~$92.2 million of cash generated during the prior year's corresponding period. The ~~$45.6~~$69.4 million decrease in the amount of cash provided between the two periods was primarily driven by the increase in accounts receivables associated with trade accounts receivables from recent acquisitions without comparable activity in 2020 and increased business activity in 2021.

Investing Activities

For the ~~six~~nine months ended ~~June~~September 30, 2021, net cash used in investing activities was ~~$44.7~~$66.3 million compared to ~~$19.2~~$20.5 million use of cash during the prior year’s corresponding period. This ~~$25.5~~$45.8 million increase was primarily driven by the purchase of CVI, PMI and Premier in ~~the second quarter of~~ 2021. For the ~~six~~nine months ended ~~June~~September 30, 2021, purchases of property and equipment decreased to approximately ~~$1.5~~$3.0 million compared to ~~$5.1~~$6.5 million in 2020 primarily due to reduced capital spending as a result of company-wide cost cutting measures in response to the COVID-19 pandemic. The current year also benefited from the sale of a corporate asset totaling $1.3 million.

Financing Activities

For the ~~six~~nine months ended ~~June~~September 30, 2021, net cash used in financing activities was ~~$12.0~~$12.9 million, compared to net cash used in financing activities of ~~$17.1~~$27.9 million during the prior year’s corresponding period. The activity in the period was primarily attributed to Term Loan B required principal payments of ~~$1.7~~$2.5 million in 2021 compared to ~~$16.3~~$26.9 million in required

principal and optional prepayments in 2020. This was partially offset by share purchases in 2021 of $8.8 million with no comparable activity in 2020.

On May 12, 2021, the Company announced that its Board of Directors authorized a share repurchase program (the “program”) under which up to $85.0 million or 1.5 million shares of its outstanding common stock may be acquired in the open market over the next 24 months at the discretion of management. During the ~~six~~nine months ended ~~June~~September 30, 2021 we purchased 1.0 million shares for approximately $29.2 million. Such consideration was funded with existing cash balances and an agreement to pay sellers over four equal installments beginning on June 15, 2021. The remaining three installments of $20.4 million were included in other current liabilities as of ~~June~~September 30, 2021.

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 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 the Company.

The Company believes cash generated from operations will meet normal working capital needs during the next twelve months. However, the Company 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, the Company may issue securities that 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/A for the year ended December 31, 2020. For a more complete discussion of our significant accounting policies and business practices, refer to the consolidated annual report on Form 10-K/A filed with the Securities and Exchange Commission on October 22, 2021. The results of operations for the ~~six~~nine months ended ~~June~~September 30, 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/A for the year ended December 31, 2020. Our exposures to market risk have not changed materially since December 31, 2020.

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~~September 30, 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 concluded that our disclosure controls and procedures were ineffective, as of ~~June~~September 30, 2021 due to previously identified 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. As a result of these material weaknesses, management evaluated the effectiveness of our disclosure controls and procedures as of ~~June~~September 30, 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,~~weaknesses, 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. New controls have been put in place to address the weaknesses identified for manual journal entries and purchase accounting. The Company will further enhance these controls over the remainder of ~~2021.~~2021 and test the effectiveness of the new or revised controls in place.

Changes in Internal Control over Financial Reporting

Other than those discussed above, there were no changes in the Company’s internal control over financial reporting during the ~~second~~third quarter of 2021 that have materially affected, or are reasonably likely to materially affect, 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.

There have been no material changes to the risk factors as previously disclosed in “Part I. Item 1A. Risk Factors” in our annual report on Form 10-K/A for the year end December 31, 2020.

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

Recent Sales of Unregistered Securities

DXP Enterprises, Inc. issued 20,793 unregistered shares of DXP Enterprises, Inc.’s common stock as part of the consideration for the September 20, 2021 acquisition of Premier. The unregistered shares were issued to the sellers of Premier.

DXP Enterprises, Inc. issued 61,177 unregistered shares of DXP Enterprises, Inc.’s common stock as part of the consideration for the July 1, 2021 acquisition of PMI. The unregistered shares were issued to the sole seller of PMI.

We relied on Section 4(a)(2) of the Securities Exchange Act as a basis for exemption from registration. All issuances were as a result of private negotiation, and not pursuant to public solicitation. In addition, we believe the shares were issued to “accredited investors” as defined by Rule 501 of the Securities Act.

Issuer Purchases of Equity Securities

A summary of our purchases of DXP Enterprises, Inc. common stock during the ~~second~~third quarter of fiscal year 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 (2)	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) (2)				Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) (2)
		Apr 1 - Apr 30	330	$	30.20	—	$	—		Jul 1 - Jul 31	808	$	31.37	—	$	55,826
		May 1 - May 31	1,690	32.23		—	85,000			Aug 1 - Aug 31	—	—		—	55,826
		Jun 1 - Jun 30	1,014,149	28.77		1,014,053	55,826			Sep 1 - Sep 30	960	27.97		—	55,826
		Total	1,016,169	$	28.78	1,014,053	$	55,826		Total	1,768	$	29.52	—	$	55,826

(1)	(1)	There were $1.0 million shares repurchased as part of our publicly announced share repurchase program and there were 2,116 shares transferred from employees in satisfaction of minimum statutory tax withholding obligations upon the vesting of restricted stock during three months ended June 30, 2021.							(1)	There were 1,768 shares transferred from employees in satisfaction of minimum statutory tax withholding obligations upon the vesting of restricted stock during three months ended September 30, 2021.
(2)	(2)	On May 12, 2021, the Company announced the Share Repurchase Program pursuant to which we may repurchase up to $85.0 million or 1.5 million shares of the Company outstanding common stock over the next 24 months. As of June 30, 2021, $55.8 million remained available under the $85.0 million Share Repurchase Program.							(2)	On May 12, 2021, the Company announced the Share Repurchase Program pursuant to which we may repurchase up to $85.0 million or 1.5 million shares of the Company's outstanding common stock over the next 24 months. As of September 30, 2021, $55.8 million remained available under the $85.0 million Share Repurchase Program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

ITEM 4. MINE SAFETY DISCLOSURES.

None.

ITEM 5. OTHER INFORMATION.

None.

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


3.3			Amendment to Section 3.4 of the Bylaws of DXP Enterprises, Inc., effective January 1, 2022. Bylaws, as amended on April 23, 201 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K (File No. 000-21513 : 21860170 , filed with the Commission on 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 for the quarter ended ~~March 31,~~September 30, 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 for the quarter ended ~~March 31,~~September 30, 2021 formatted in Inline XBRL.

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

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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: ~~November 5,~~December 8, 2021

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