Dxp Enterprises Inc Q3 FY2023 Earnings Call

Good morning, my name is Krista and I'll be your conference operator today. At this time, I would like to welcome everyone to the DXP Enterprises 3rd Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during that time, please press star followed by the number 1 on your telephone keypad. Thank you. I will now turn the conference over to Kent Yee, Chief Financial Officer. Kent, you may begin.

Thank you, Krista. This is Kent Yee, and welcome to DXP's Q3 2023 conference call to discuss our results for the third quarter ending September 30, 2023. Joining me today is our Chairman and CEO, David Little. Before we get started, I want to remind you that today's call is being webcast and recorded and it includes forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis are contained in our SEC filings. However, DXB assumes no obligation to update that information as a result of new information or future events. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our earnings press release. The press release and an accompanying investor presentation are now available on our website at ir.dxpe.com. I will now turn the call over to David Little, our chairman and CEO, to provide his thoughts and a summary of our third quarter performance and

financial results. David? Thanks Kent. Thanks to everyone on our 2023 third quarter conference call. Kent, we will take you, Kent will take you through the key financial details after our remarks, after my remarks and after our prepared comments we will open for Q&A. It is my privilege to share DXP's third quarter results with you on behalf of over 2,799 DX people. Congratulations to all our stakeholders and a special thank you to our DX people you can trust. We are pleased to see in-market demand and DXP's performance continue through Q3 and remain at record levels as we move through the second half of 2023. This allows us to achieve another quarter of both solid sales growth and 10% plus EBITDA margins. We are pleased to announce strong third-quarter results with sales, operating income, and earnings per share all up over the prior year. This is a great way to start the second half of physical 2023. We continue to deal with the macro uncertainty and the impacts of inflation and elevated interest rates, but we remain focused on serving our customers, providing products and services that help them save money, consolidate their MRO spend, manage inventory, provide solutions to solve their evolving needs. Being customer driven and growing sales profitably is our goal. We continue to focus on driving organic and acquisition growth, increasing gross profit margins, and increasing productivity. Our execution has resulted in the physical 2022 and 2023 top line growth and bottom line organic and acquisition growth. That said, our growth has not been as large as we would like, so we expect to add some acquisitions to our results as we close out physical year 2023 and going into physical year 2024. We continue to be excited about the future and delivering differentiated customer experiences, creating an engaging, winning culture for DX people, and investing in our business to strengthen our core capabilities and drive long-term growth. Year-to-date through September 30th, total sales sales are up 18.3% and operating income is up 46.9%. Last 12 months sales adjusted EBITDA were $1.68 billion and $164 million respectively in EBITDA margins for a margin of 9.8%. Moving to our third quarter results, total DXP revenue of $419.2 million for the third quarter of 2023 was an 8.3% increase year-over-year with adjusted EBITDA of $44 million for the third quarter. In terms of Q3 financial results, service centers led the way, growing sales 13.2% year-over-year, year, followed by innovative pumping solutions essentially performing flat at 59 million in sales, and supply chain services declined 3.5% or 2.4 million to 65.8 million year-over-year. In terms of service centers, the diversity of our in-markets and our MRO nature within and service centers allows us to continue to remain resilient and continue to experience consistent top-line year-over-year growth. From a regional perspective, a majority of our regions continue to experience year-over-year growth including the North Rockies, Northern Central, Alaska, and Texas Gulf Coast. Additionally, we continue to see strength in our air compressor product division. We continue to expect that our in-markets will remain constructive over the near future. As it pertains to energy, we believe that we could be in the early stages of an upcycle supported by the energy transition, which has been consistent with our commentary over the last three quarters. In terms of IPS, our Q3 average IPS backlog continues to stay ahead of the physical 2022 average. Additionally, our year-to-date average continues to exceed our long-term average of IPS going all the way back to 2015, which we highlighted and occurred for the first time in the second quarter and continues to move into fiscal year 2024. What this indicates is that we are continuing to get bookings and we are, as we mentioned earlier, we are likely in the front end of a good cycle on the energy related project work that we look forward to as we move through 2023 and into 2024. As we maintain growth, our main focus within IPS will be managing the demand levels we we have, finding opportunities in all markets such as energy, biofuels, food and beverage, water and wastewater, and pricing appropriately given the supply chain dynamics and ebbs and flows of inflation. Supply chain services experienced a decline year over year, primarily due to some facility foreclosures with our customers as well as streamlining in the efficiencies we brought out to our new diversified chemical customer that we added last year. This happens as part of our value proposition, but we do not anticipate any further materials saving impact on DXP. As we move into Q4, we will look for new customer additions as well as continuing to manage procuring products and managing inflation both year over year and sequential growth will flatten out until we start ramping new customers. That said, demand for SES services is increasing because of the proven technology and efficiency they perform for all their industrial customers. But the sales cycle can be protracted, and we will look to our SES leaders to add new customers as we move into 2024. The XP's overall gross profit margins for the third quarter were 29.9%, a 113 basis point improvement over 22, and down 85 basis points sequentially. Overall, I'm pleased with our gross margins and our steady improvement over the last seven quarters. SG&A for the third quarter increased $4.6 million versus Q3 of 22 but SG&A as a percent of sales declined going from 22% in Q3 of 22 to 21.4% in Q3 of 23. SG&A continues to reflect our investment in our people and organization and as always it is my privilege to share DXP's financial results on behalf of these DXP people. DXP's overall operating income was 8.6% or $35.9 million, which included corporate expense and amortization. This reflects 170 basis point improvement in margins over Q3 of 22. That being said, we still feel there is opportunity in operations to be more efficient. Service centers operating income margins were 14.1% and IPS operating income margins were 18.9% and supply chain services operating income margin was 8.5%. Overall DXP produced adjusted EBITDA of $44 million versus $34.3 million in 2022. This turned into a year-over-year increase of 9.7 million, or 28.3%. Adjusted EBITDA as a percent of sales was 10.5%, up 164 basis points versus Q3 of 22, and essentially flat with Q2 of 23. I am pleased by our performance in the third quarter. However, we still have substantial work to do to achieve our goals, but I am confident the team will continue to execute. We are growing sales in excess of market and expect that in the near future. We expect to drive strong SG&A leverage, manage working capital, and generate free cash flow. If organic growth slows, then free cash flow will grow, and we will take advantage of the economy to grow profitably through acquisitions. We have grown sales on a compounded annual growth rate of over 23% since COVID, and we have achieved new highs in both sales and profitability. And I would like to thank our stakeholders and especially our DXP people. With that, I will now turn it back over to Kent to review the financials in more detail. Thank you, David.

And thank you to everyone for joining us for our review of our third quarter 2023 financial results. Q3 was a great quarter for DXP, and our results are in line with our expectations and reflect the positioning we were anticipating as we prepare to go into fiscal 2024. This quarter reflects our third quarter of 10% plus adjusted EBITDA margins, strong free cash flow generation, and meaningful diluted EPS growth. We are excited to report these results, and we look forward to successfully closing out 2023 and starting fiscal 2024. Specifically, Q3 financial performance reflects our ability to continue to successfully navigate through the market and create value for all our stakeholders. As it pertains to our third quarter, Q3 highlights are as follows. Strong year-over-year organic sales growth, lessening impacts from inflation and price increases compared to a year ago, continued gross margin strength and stability, continued year-over-year and sequential growth in the IPS energy-related backlog, consistent operating leverage leading to sustained adjusted EBITDA margins, more notably our third quarter of 10% plus adjusted EBITDA margins, and significant capital return to our shareholders through our share repurchase program. Total sales for the third quarter increased 8.3% year-over-year to $419.2 million. Acquisitions that have been with DXP for less than a year contributed 3.9 million sales during the quarter. Average daily sales for the third quarter were 6.7 million per day or essentially flat to Q2 and were up 10% versus Q3 2022. Adjusting for acquisitions, average daily sales were 6.6 million per day for the third quarter. That said, average daily sales trends during the quarter went from 6.58 million per day in July to 7.1 million per day in September, reflecting a typical quarter end push as we closed out the third quarter and an uptick from the Q2-23 month of June versus September, or 6.9 million per day versus 7.1 million per day. In terms of our business segments, service centers grew 13.2% year-over-year. This was followed by innovative pumping solutions declining 0.1% or essentially flat year-over-year and supply chain services declining 3.5% year-over-year. In terms of our service centers, regions within our service center business segment which experienced notable sales growth year-over-year include the North Rockies, North Central, Alaska, and Texas Gulf Coast. Key products and end markets continue to drive sales performance include air compressors, rotating equipment, and chemical, general industrial, food and beverage, transportation, and energy. Supply chain services' performance continues to reflect the impact of the addition of a large diversified chemical customer that we added in Q2 of last year and has fully ramped as of Q2 of this year. That said, supply chain services experienced a decline year over year primarily due to some facility closures with existing customers as well as the streamlining and efficiencies we brought to our new diversified chemical customer that we added last year. As David mentioned, this happens as a part of our value proposition, meaning we anticipate reducing a customer's absolute spending volume by improving their purchase behaviors and inefficiencies. This customer contributed $16.1 million in sales during the quarter versus $16.5 million a year ago. As we move into Q4, we will look for new customer additions as well as continue to manage procuring products and managing inflation, but both year-over-year and sequential growth will flatten out until we start ramping new customers. In terms of innovative pumping solutions, we continue to experience increases in the energy-related backlog. Our Q3 energy-related average backlog grew 7.9% over our Q2 average backlog, which continues to be a notable uptick compared to Q1 of this year and continues to be ahead of our 2015, 2016, and 2017 average backlog. The conclusion continues to remain that we are trending meaningfully above 2016 and 2017 sales levels, and we're moving towards 2015 levels based upon where our backlog stands today. We have been experiencing strong organic sales growth within IPS, as we mentioned in the first half of 2023. We expect that to continue throughout 2023 and into 2024. Additionally, we are also continuing to find opportunities in other markets. In terms of our DXP water backlog, we experienced a sequential increase of 28.2%. Turning to our gross margins, DXP's total gross margins were 29.95%, 133 basis point improvement over Q3 2022. This improvement was driven by strength in our IPS business segment, showing the greatest improvement with margins improving 430 basis points on a year-over-year comparative basis. This was followed by a 49 basis point improvement from service centers. That said, from a segment mixed sales contribution, service centers contributed 70.2%, supply chain services 15.7%, and innovative pumping solutions was 14.1%. Compared to last year, SES's mixed contribution was higher at 17.6%, which impacted margins in Q3 of 2022. In terms of operating income combined, all three business segments increased 139 basis points in year-over-year business segment operating income margins, or $9.8 million versus Q3 2022. This was driven by improvements in operating income margins across all three business segments. IPS operated income margins improved 651 basis points, driven by the addition of water and wastewater acquisitions and overall improvement within the energy-related IPS business. Service center operating income margins improved 34 basis points on a Q3 comparative basis in year-over-year operating income margins. Supply chain services operating income margins improved 67 points, six basis points on year-over-year comparative basis. The improvement in service centers reflects the impact of acquisitions at a higher relative operating income margin. Total DXP operating income increased 170 basis points versus Q3 2022 to 35.9 million. Our SG&A for the quarter increased $4.6 million from Q3 2022 to $89.7 million. The increase reflects the growth in the business and associated incentive compensation, as well as DXP investing in its people through merit and pay raises that we continue to experience. SG&A as a percentage of sales decreased 57 basis points year over year to 21.4% of sales. We still anticipate that DXP will benefit from the leverage inherent in the business, despite increased operating dollars supporting our growth, cost inflation, and the impacts of acquisitions. Turning to EBITDA Q3 2023, adjusted EBITDA was $44 million. Adjusted EBITDA margins were 10.5%. This is our third quarter of sequential adjusted EBITDA margins in excess of 10%, and we will look for this to continue. Year-over-year adjusted EBITDA margins increased to 164 basis points, or $9.7 million. This reflects the fixed cost SG&A leverage we experience as we grow sales. This translated into 3.4 times operating leverage during the quarter. In terms of EPS, our net income for Q3 was $16.2 million. Our earnings per diluted share for Q3-23 was $0.93 per share versus $0.71 per share last year. Of note, we returned $22.6 million to shareholders through our share repurchases during Q3. Turning to the balance sheet and cash flow, in terms of working capital, our working capital increased $10.4 million from December and decreased $11.9 million from June to $287.5 million. As a percentage of sales, this amounted to 17.1% of last 12-month sales. At this point, we have moved in line with our historical averages or range in terms of investing in working capital, and we have moved off our Q3 2022 high of 19.9% of last 12-month sales as we have onboarded some of our recent acquisitions for a full 12 months. We do anticipate further acquisitions, so as we move into fiscal 2024, this could move upwards, albeit we are focused on managing working capital as efficiently as possible as we scale and grow. In terms of cash, we had $27.2 million in cash on the balance sheet as of September 30th. This is a decrease of $18.9 million compared to the end of Q4 2022 and an increase of $11.6 million since June. This reflects the strong cash flow generation we experienced during the quarter, which we'll touch upon later on in my comments. In terms of capex, capex in the third quarter was $1.5 million or a decrease of $327,000 compared to Q2-23. We still are ahead of our fiscal year 2022 levels. We continue to reinvest in some of our facilities and equipment on behalf of our employees. As we move forward, we will continue to invest in the business as we focus on growth. Turning to free cash flow, free cash flow through Q3 was a positive $56.7 million, which reflects free cash flow produced of $38.3 million during the third quarter. This was driven by an $11.9 million reduction in working capital along with our sustained earnings through the quarter. Specifically, we lessened the impact from investments and project work along with a small increase in payable days. That said, while we continue to make improvements in our free cash flow, when we are growing, DXP makes significant investments in inventory and project work throughout the year, and we have experienced significant step-ups since Q4 of last year. Return on invested capital, or our ROIC, at the end of the third quarter was 34% and continues to be above our cost of capital as reflecting our improved profitability levels. As of September 30th, our fixed charge coverage ratio was 2.67 to 1, and our secured leverage ratio was 2.36. Turning to the balance sheet and cash flow in terms of working capital, our working capital increased $10.4 million from December and decreased 11.9 million from June to 287.5 million. As the percentages failed, this amounted to 17.1%. At this point, we have moved in line with our historical averages or ranges in terms of investing in working capital. We moved off our Q3 2022 high of 19.9% of last 12 months sales as we have onboarded some of our recent acquisitions for a full 12 months. We do anticipate further acquisition, so as we move into fiscal 2024, this could move upwards, albeit we are focused on managing working capital as efficiently as possible as we scale and grow. In terms of cash, we had $27.2 million in cash on the balance sheet as of September 30th. This is a decrease of $18.9 million compared to the end of Q4 2022 and an increase of $11.6 million since June. This reflects the strong cash flow generation we experienced during the quarter, which we will touch upon later on in my comments. In terms of CapEx, CapEx in the third quarter was $1.5 million or a decrease of $327,000 compared to Q2-23. We still are ahead of our fiscal 2022 levels. In terms of liquidity, as of the quarter, we were undrawn on our ABL with $2.9 million in letters of credit outstanding with $132.1 million of availability and liquidity of $159.3 million, including the $27.2 million in cash. Subsequent to the quarter, we announced that we refinanced and repriced our term loan B, which now has a maturity of October 2030. We successfully repriced the new term loan B, reducing our borrowing costs by 50 basis points to SOFR plus $4.75 versus SOFR plus $5.25, while also raising an incremental $125 million in capital to support our acquisition program over the next six to nine months. In terms of go forward financial statement impacts in the fourth quarter, we will write off an estimated $12.4 million in amortized debt issuance costs and capitalize a new estimated $12 to $13 million of financing costs. Pro forma interest is expected to be in the range of $16 to $17 million per quarter. In terms of acquisitions, we closed on one acquisition after the quarter, Alliance Pump and Mechanical Service, and we are excited to have them, and they will start reporting with us for the fourth quarter of 2023. DXP's acquisition pipeline continues to grow, and the market continues to present compelling opportunities. Looking forward, we expect this to continue through 2023 and 2024, and we look forward to closing a minimum of four to five acquisitions by the end of the first quarter of 2024. In terms of capital allocation, we repurchased $22.6 million in the quarter, a year-to-date 56.2 million or a total of 618,000 shares in Q3 and 1.7 million shares year-to-date of DXP stock. In summary, we are pleased with our third quarter performance and we look forward to finishing 2023 strong as we position ourselves for 2024. Now, I will turn the call over for questions.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad your first question comes from the line of tommy moll from stevens and please go ahead

good morning and thank you for taking my questions hey good morning david you use the word constructive to describe your end markets and i wondered if we could unpack that a little bit and i'm specifically talking about x oil and gas so more on the industrial side how would you characterize that environment today just based on any anecdotes you can share and how does it feel like it may have

changed over the last quarter so Tommy I thanks for your question and it's that's a good question I think best described is that we have an unusual amount of companies that are doing well and we have an unusual amount of companies that aren't doing well. I think you have people that are being affected by higher interest rates. I think you have people that aren't being affected by that and and then of course the consumer ultimately is probably the driver of all of that and so it's interesting that it seems to all be balancing out. Whether aerospace is up and UX, oil and gas, but actually that's kind of been down through most of this year and of course we think that's going to get better. But other industrial, the PMI index is saying we're in contraction and yet my metal working group has been relatively flat most of the year maybe ever so slightly down so we're and then when I say up and down I'm really not talking about it being drastically up and down I'm just talking about it being up a little bit and down a little bit so we don't we're not there's no panicking going on over here we have we have some very strong growth initiatives for to be very specific and and they are producing good results because they're new in nature they don't they don't move the needle a whole bunch you know they you know we do an extra million here an extra two million here and three million here but that's you know that's not offsetting that we have some customer that just you know his business is down 10% so he comes down so it's it's really hard it's really why we're not overly positive or negative you know I think we don't we're not taking a positive or negative stand on anything and and and we're just we're just dealing with what hand we're dealt with and and I think we're trying to grow the business and I think I'm pretty proud of our DXP people for our goal is always 10 10 and 10 10 percent organic growth and we've we've exceeded that and then 10 percent EBITDA margins and that's we've exceeded that we're picking acquisitions that have high EBITDA margins. That's kind of the goal. We're trying to pick acquisitions that actually are small in nature typically, but they have some record of growth. There's a lot of opportunities. I'm not paying 10 times for some company that for the last five years has had flat growth so and then you know we're gonna we're gonna generate a lot of cash flow so that's that's a good thing so I don't know I'm answering a lot of questions and I'm but back to your point of how about looking at each individual market you know we could go through that but it's just going to be 10 up and just slightly up and 10 down slightly down and so um it's just kind of an interesting

economy out there yep well if you roll it all together and you look at the 419 million you just reported for the third quarter what's your best guess on fourth quarter above that level

below that level about the same yeah tell me i'll jump in here a little bit you know one thing just to tag on to David's just comments about the end markets is, you know, sequentially, you know, 419 million, I think from your estimate, be considered down. I think the one thing we missed there is, you know, we had 63 business days in Q3 versus 64 in Q2. So if I adjust for our sales per business day, we're essentially flat to Q2, which was in line, I think, with directional comments. Once again, we typically don't give guidance, but directional comments around, you know, our Q2 commentary. That said, to pull that forward, I think in Q4, what we see is, you know, there's 61 business days, so you'll even go down an additional two. So, you know, our sales per business day continues to perform. As I outlined, kind of the trend was through the quarter 6.6 million in July, 6.3 million in August, September was 7.1, October 6.4 so you know if you take a blended average and do that by 61 days you can get to kind of our macro directional comments of where we think the business will perform in Q4 and some of that's just once again function of the number of business days you go into the holiday season etc some other things going in And that said, we did have an acquisition in the quarter that on a full year basis is roughly around 2 million in sales. So once again, people can do the math of incorporating that. And so those would be our thoughts about how to think about kind of, you know, you know, going forward. I don't think we see, you know, to David's comments, we have a balanced mix of end markets. The consumer-facing ones would probably be the way I'd summarize it, tends to probably see the ones that you have those slightly downs. And then in terms of our hardcore true industrial markets, to David's point, you have some that are up or down, that are offsetting, that are having lessening impacts from inflation. And so net, you know, the business is still growing year over year.

So, Kent, all the detail was helpful. And just to make sure I'm following correctly, your 63 business days in the third quarter. steps down to 61 in the fourth quarter. And I think what I heard you say is if we calculate that daily sales rate for the third quarter across the average of the third quarter, there's no reason that shouldn't look meaningfully different in the fourth quarter.

Did I hear that correctly? That's directionally correct. Once again, And we had an acquisition, you know, without being too specific. But, yeah, I mean, that's how, you know, one of the KPIs here at DXP that we monitor, that we always talk about, obviously, on the earnings calls, is very simplicity at a very high level of sales per business day. Okay.

And then on the margin side, third quarter in a row, hitting that double-digit target. And I think I heard you all say you don't see any reason that shouldn't continue. you. So I would just ask a more open-ended question. I mean, first of all, make sure I heard that correctly. And second of all, just talk to what's supporting some of that double digit margin performance and where do you think you had medium term? Yeah. I mean, at the high

level, what starts off really supporting that is our gross margins. If you look at our gross margins over the past year and a half, two years, we've taken a step up by about 100 to 200 basis points, call it on average so that 29 to 30 percent gross profit uh range is is the biggest driver and then you know as is inherent in distribution you get you get you get sgna leverage and so um and so if you're managing costs uh correctly which we work pretty hard on um you know if you get the 30 and then you you you've got the 20 sgna which has been one of david's long-term goals you get to the 10 percent and so we've been able to do that part of that is driven by mix once again our water wastewater acquisitions tend to perform at a higher level gross margin so it was our air compressors and then our base business we're always pushing our heritage if you will DXP business to perform in line with those businesses and get to that 30 percent and we surely have some that do do that and more. So those are the levers at a high level, and we've been experiencing that quarter

over quarter. Kent, on interest expense, I just want to make sure I heard everything you said correctly, and there's a couple layers here. So maybe we'll start with the easier one. I think what I heard you say is, forgetting about Q4 for a minute where there's some noise, but that But post the refinancing on today's SOFR, it's about a $16 to $17 million a quarter expense line. Did I interpret that correctly?

Yeah, yeah. It's a floating rate, right? So it's a little bit of a moving target, Tommy, but that's correct. If you just kind of, with everything you know today, Proforma, you're writing about $16 to $17 million in interest expense a quarter for the new incremental $125,000, so.

Okay. And then 4Q, which will be a little bit trickier, there was a $12.4 million item, a $12 to $13 million item. Can we just go back over those again?

Yeah. Essentially, you already, for lack of better words, expense and pay for it, but due to the accounting, you have unamortized debt issuance costs that you write off as part of a new facility and a new transaction. So we'll write that off and flush that through the P&L, if you will, in Q4. And then we'll capitalize a new $12 to $13 million worth of debt issuance costs associated with the new facility or the new $550 million raised here just recently. So that's essentially what will go on. The P&L impacts, once again, that people will see is just the write-off of the debt issuance costs. And then you'll start to see, obviously, the new pro-forma interest kick in in Q4. So those are the two things you're really seeing the P&L.

Okay. And if you think about the consolidated interest expense line for Q4, what does it all

add up to? Well, once again, also the missing piece, which once again, as we do in today's environment, we are managing cash, meaning, hey, we do get some interest income on our cash that offsets that 16 to 17 million but that's you know there's there's a daily movement there a little bit so um you know next you could get down to you know 15 and a half to at the lower end of that forecast of interest expense is what i would tell you just in terms of what's rolling

through the p and l but and that's for q4 or for the the run rate yeah for the q4 for q4

Once again, the facility also amortizes if you go past Q4, Tommy, 1% per year in terms of principal reduction. So you're effectively lowering that interest, that ultimate interest over time. But, you know, not to get into the details of that math here on the phone, but I think in Q4, what you would expect to see is the $16 to $17 million in interest expense. And then as you go forward every quarter, the combination of debt amortization and the 1% per year or a quarter percent every quarter plus kind of some interest income associated with the cash on the balance sheet will offset that. And so it will peak probably in Q4, Q1, and then it will just lessen as we go out.

Okay. Let's see. On a couple strategic items for you guys, M&A, I think I heard maybe four to five more deals you've got soft-circled for Q4, Q1. What can you tell us about that pipeline, particularly in terms of just size of the deals you're considering at this point, and what seller expectations look like in this rate and economic environment?

Yeah, so, you know, we actually have letters of intent in place, so we're just actively working through diligence on those, and that's why we set a minimum of four to five by the end of Q1. The timing, once again, the calendar is a little bit tough at this time of the year. you have holidays and different things so we're kind of working through that being sure we're being prudent from a due diligence standpoint but we anticipating potentially some um here as we close out the year and obviously um if we don't hit that timeline we'll close them out in the first quarter so just to give you some color there just in terms of kind of overall expectations from a valuation standpoint i mean hey we still continue to find um good deals at good multiples meaning our average purchase multiple has always been seven times or less, and so we're still finding those opportunities out there in the marketplace. You know, the themes in terms of the types of acquisitions, water wastewater continues to be a big theme. We do have some just industrial kind of, I'll call it rotating equipment product and our repair and services, and so those are also one of our themes. That's what Alliance Pump and Mechanical was closer to. It did have some water wastewater themes there, but also just some general rotational rotating equipment repair type stuff. So those are the themes we're seeing and so we're kind of excited to work through those and we'll be excited to kind of report those when we get

those closed. Last question for me on oil and gas. There have been some large transactions announced for some of the players in that industry to consolidate and I just wonder from a strategic perspective, is there anything that that signals positive or negative to you for your business

and not in market? Well, I think it's potentially negative. I think these big companies had their own budgets, their own people doing projects. We participate in those projects. And when you put the two of them together, assuming if they're doing it and they're just gonna move forward with the same total budget, then that would be great. If they do it and they're wanting to consolidate and try to become more efficient, well then I think those budgets could possibly be cut and so therefore you know there'd be there's going to be good activity and of course it's all about how much of we don't we don't get a hundred percent anybody's budget so so still I don't we don't feel like that IPS our innovative pumping solution group is pretty positive about a combination of alternative type fuels that are more environmentally friendly and the traditional stuff and both of those things are happening as we speak and so in some ways we feel they feel like things are continuing to improve for them and I and I and I feel that way but specific to the mergers you're talking about you know do they do they take some budget out of play yep well I

appreciate all the insight today that's all I had so I can turn it back again if

you would like to ask a question please press star 1 on your telephone keypad we have no further questions in our queue at this time and this does conclude today's conference call thank you for your participation and you may now