Thank you for joining us, and welcome to the DXP Enterprises First Quarter Earnings Call. This conference is being recorded.

Thank you. This is Kent Yee, and welcome to DXP's Q1 2024 Conference Call to discuss our results for the first quarter ending March 31, 2024. 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 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, DXP 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 in the 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 first quarter performance and financial results.

Good morning, and thank you, Kent, and thanks to everyone for joining us today on our Fiscal 2024 First Quarter Conference Call. We are off to a great start in 2024. We remain highly focused on providing the expertise our customers have come to expect from DXP and finding ways to help them manage their supply chain, increase our uptime, increase productivity, achieve their ESG objectives, and successfully run their operations. Many customers, especially those in the industrial, energy, and utility sectors continue to see solid end market demand for their products. DXP remains committed to our overall focus of being customer-driven experts to keep their operations running and their people safe. This consistent approach has fueled our financial results. First quarter adjusted EBITDA of $40.3 million and adjusted diluted earnings per share of $0.74 was supported by sequential sales growth of 1.4%. Thanks to the efforts of all our DXP people across the company, we continue to build on positive financial results in fiscal 2023 and drive further operational improvements while performing for our customers. I personally want to thank all our DXP stakeholders, especially all our DXP people for their determination and hard work as we continue to grow and improve the business. We are encouraged by our results and remain focused on growing our business organically and inorganically in fiscal year 2024. I will begin today with some perspective on our first quarter and thoughts on the remainder of 2024. Kent will then take you through the key financial details after my remarks. After his prepared comments, we will open for Q&A. Overall, we are pleased with our first quarter results. Our first quarter highlights good execution and a number of normalized trends across DXP, with a lot of effort now focused on capturing additional market share versus managing and working through inflation. We also experienced inorganic growth by continued execution of our acquisition strategy to accelerate our end market diversification efforts. We closed three great acquisitions in the first quarter, including the addition of an industrial and steel company, Pro-Seal, and two additional DXP Water acquisitions, Hennesy Mechanical Sales and Kappe Associates. To our new DXP people, welcome to DXP; it's great to have you as a part of DXP. That said, we are building a more resilient, diversified business that can generate solid performance in uncertain economic conditions. And as we discussed last year, we believe you are seeing and will continue to see evidence of these efforts in Q1. DXP's broad-based industrial end markets, which is 75% of our business today, continues to show resilience primarily due to price increases and in DXP's case, continued growth in demand and market share. The ISM PMI manufacturing index, which gives us an indication of how DXP's broad industrial markets will perform, moved from 49.1% reading in January to a 50.3% reading in March. This trend is technically moving from contraction to growing territory. But in April, we began to go back to a reading of 49.2%. We continue to believe in today's inflationary environment, this slight contraction is getting offset by price increases still moving through the supply chain. And in DXP's case, continued growth in demand because of the markets we serve and our growth strategies. We will continue to monitor as we move through 2024. Oil and gas, which constitutes the remaining 25% of DXP, has shown consistent demand through 2023 and the early parts of 2024, and we anticipate growth in the future. Given the geopolitical circumstances and the overall relative strength in prices, most of our business in oil and gas is tied closer to actual production and increases in capital budgets. We continue to experience a pickup in sales activity in Q1, which reflects the increase in backlog we continue to see. Regarding broader demand, underlying trends remain consistent with the fourth quarter, and trends were the strongest in March, as is typical with sales per business day going from $5.9 million per day in January to $7.5 million per day in March. Total DXP sales for Q1 increased 1.4% sequentially and are $412.6 million, or an average of $6.6 million per business day for the first quarter. Thank you to the 2,920 DXP people for your hard work and dedication. In terms of Q1 financial results, Innovative Pumping Solutions led the way, growing sales 3.2% sequentially and 21% year-over-year, followed by service centers growing 1.1% sequentially, and then Supply Chain Services also growing sales 1.1% sequentially. In terms of IPS, Innovative Pumping Solutions, our Q1 average IPS energy backlog continues to stay ahead of all averages going back to 2015, with the exception of the 2018 average. Our start in 2024 had meaningful bookings in the months of February and March, which signals to us that we should have strong energy product revenues over the next 9 to 15 months. We are continuing to achieve bookings. As we mentioned earlier, we are likely in the front end of a good cycle on energy-related project work that we look forward to as we move through 2024. Service centers keep essential customers running with MROP, maintenance, repair, operating production products and services necessary for the customer to stay in business. The diversity of the end markets and our MRO nature within service centers allows us to continue to experience balanced sales growth through the first quarter. Regions that experienced sequential as well as year-over-year sales growth included South Atlantic, North Central, and additionally Canadian rotating equipment and steel division from a geographic and product perspective experience sequential and year-over-year sales growth. Notable regions that contributed during the quarter included Southwest, South Central, and South Rockies. Supply Chain Services increased 1.1% sequentially and experienced a 7.6% decline year-over-year, primarily due to some facility closures with our customers as well as the streamlining and efficiency we brought to our new diversified chemical customer we added last year. We will look for these customer additions and continue to manage procurement products and manage inflation. But both year-over-year and sequential growth will flatten until we start ramping new customers. That said, demand for SCS services is increasing because of the proven technology and efficiencies they perform for all their individual customers. But the sales cycle can be protracted. We look to our CSC leaders to add new customers as we move forward in 2024. DXP's overall gross profit margins for the quarter were 30%, a 55 basis point improvement over Q1 of 2023. A special thanks to our DXP people who have stayed on top of supplier product increases and increased labor costs and overall efficiencies. Overall, DXP produced EBITDA of $40.3 million and EBITDA as a percent of sales was 9.8%, which is below our stated goal of 10% plus. Regarding capital allocations, we continue to make strategic investments to fuel growth and diversify DXP through acquisitions, while opportunistically repurchasing shares. By balancing these two approaches, we pursue both and drive long-term value for our shareholders. During this quarter, we purchased 326,000 shares amounting to $16.8 million. We produced over $24.1 million in free cash flow, a solid start to the year and a good benchmark for our expectations going forward. Let me conclude my remarks by saying that I am encouraged by our continued sequential improvement in sales and profitability; I believe DXP is well positioned. We continue to make progress on our growth strategies, and our commitment to customers is stronger than ever. We are complementing these efforts with a focus on improving efficiency while making strategic investments in the business. We are driving growth and improvements at DXP, and we look forward to navigating and working through fiscal 2024. Finally, I would like to thank our DXP people for a great quarter and a positive start to the beginning of 2024. We are excited for what is next. With that, I will now turn it back 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 first quarter 2024 financial results. Q1 financial performance reflects DXP's ability to continue to successfully navigate through the market and execute, creating value for all our stakeholders. We have been successful in transforming and diversifying DXP thus far, but we still have progress to make. We have been successful in navigating the inflation pressures. We have built DXP into becoming the best solution for the industrial customers' needs, and we will be successful in continuing to grow sales and earnings and become a distributor dedicated to the highest quality of customer service through product development. Sales increased 1.4% sequentially. Acquisitions that have been with DXP for less than a year contributed $11.8 million in sales during the quarter. Average daily sales for the first quarter were $6.6 million per day versus $6.7 million per day in Q4 '23 and $6.6 million per day in Q1 '23. Adjusting for acquisitions, average daily sales were $6.4 million per day for the first quarter of 2024 versus $6.3 million per day during the first quarter of 2023. That said, the average daily sales trends during the quarter went from $5.9 million per day in January to $7.5 million per day in March, reflecting a typical quarter-end push as we closed out the first quarter. In terms of our business segments, Innovative Pumping Solutions grew 3.2% sequentially and 21% year-over-year. This was followed by service centers growing 1.1% sequentially and sales declining 5.7% year-over-year. Supply Chain Services grew 1.1% sequentially and declined 7.6% year-over-year. In terms of our service centers, regions within our Service Center business segment, which experienced sequential as well as year-over-year sales growth included the South Atlantic and North Central. From a product and geographic perspective, our Canadian rotating equipment and steel division also experienced sequential and year-over-year sales growth. Other notable regions that contributed during the quarter included the Southwest, South Central, and South Rocky regions. In terms of Innovative Pumping Solutions, we continue to experience increases in the energy-related backlog. Our Q1 energy-related average backlog grew 2.7% over our Q4 average backlog and continues to be ahead of all our averages except 2018 and 2019. The conclusion continues to remain that we are trending meaningfully above all notable sales levels, and we are moving towards 2018 and 2019 levels based on where our backlog stands today. We have been experiencing strong organic sales growth within IPS and we expect that to continue throughout 2024. We also see strength in our IPS water backlog as it continues to grow due to a combination of organic and acquisition addition. Our IPS Water backlog grew 11.8% over our Q4 ending backlog, excluding our two most recent water acquisitions. Supply Chain Services performance primarily reflects a 1.1% increase sequentially and a decline year-over-year, which we mentioned in our Q4 and Q3 earnings call, but it's primarily due to some facility closures with existing customers as well as the streamlining and efficiencies we brought to our new customers. As David mentioned, we will look for new customer additions as we move through 2024. Turning to our gross margins, DXP's total gross margins were 30%, a 55 basis point improvement over Q1 2023. This improvement is attributed to consistency in margins within Service Centers and Innovative Pumping Solutions and the contribution from acquisitions and a higher overall relative gross margin versus our base DXP business. That said, from a segment mix, sales contribution, service centers contributed 69.9%, Supply Chain Services 15%, and Innovative Pumping Solutions was 15.1%. In terms of operating income, combined, all three business segments increased 16 basis points sequentially in business segment operating income margins to $1.3 million versus Q4 2023. This was primarily driven by improvements in operating income margins within service centers and supply chain services. The improvement in service centers reflects the impact of acquisitions at a high relative operating income margin. Total DXP operating income was $29.1 million in Q1 2024. Our SG&A for the quarter increased $5.1 million from Q1 2023 and $1.9 million from Q4 2023 to $94.8 million. The increase reflects normal seasonal amounts in terms of payroll taxes, insurance, and other administrative items as well as the growth in the business and associated incentive compensation and DXP investing in its people through merit and pay raises. SG&A as a percentage of sales increased to 183 basis points year-over-year to 22.96% of sales. Turning to EBITDA, Q1 2024 adjusted EBITDA was $40.3 million. Adjusted EBITDA margins were 9.8%. It is worth noting that this is slightly below our recent 10%-plus trends and reflects normal financial seasonality associated with higher payroll taxes, insurance, and associated items. Additionally, it reflects some unique one-time items associated with acquisitions and excess legal expenses. We still continue to expect to benefit from the fixed cost SG&A leverage we experienced as we grow sales and anticipate this will pick up as we move through fiscal 2024. In terms of EPS, our net income for Q1 was $11.3 million. Our earnings per diluted share for Q1 2024 was $0.67 per share versus $0.95 per share last year; conservatively adjusting for some of the one-time items just previously mentioned, earnings per diluted share for Q1 2024 was $0.74 per share. Turning to the balance sheet and cash flow. In terms of working capital, our working capital decreased $3.2 million from December to $268.9 million. As a percentage of sales, this amounted to 16.1%. This is three consecutive quarters of working capital creating cash for DXP, or a source of cash of $38.1 million in a decline as a percentage of sales. In terms of cash, we had $139.7 million in cash on the balance sheet as of March 31. This is a decrease of $33.4 million compared to the end of Q4 and reflects the three acquisitions we closed during the quarter, Hennesy, Kappe, and Pro-Seal, as well as $16.8 million in share repurchases. In terms of CapEx, CapEx in the first quarter was $2.9 million or a decrease of $2.3 million compared to Q4 2023 and a $910,000 decrease versus Q1 of 2023. Last year, CapEx increased versus 2022; and like this time last year, we continue to expect CapEx to pick up in 2024 versus 2023. We are continuing to make investments in our business, software, our facilities, and operations for our employees. As we move forward, we will continue to invest in the business as we focus on growth. We will communicate these investments as appropriate. Turning to free cash flow, free cash flow for the first quarter was $24.1 million or an increase of 6.4% versus Q1 2023. This primarily reflects improvements in profitability along with the reduction in receivable days and continued management of our project work, which we have highlighted in the past requires investments in inventory, product, and cost in excess of billings. That said, we continue to focus on tightly managing this aspect of our business from a cash flow perspective and look to align billings with the investments. Return on invested capital, or ROIC, at the end of the first quarter was 36.3% and should continue to improve as we drive margins and operating leverage and improve our run rate EBITDA. As of March 31, our fixed coverage ratio was 2.3:1, and our secured leverage ratio was 2.3:1 with a covenant EBITDA for the last 12 months of $179.3 million. Total debt outstanding on March 31 was $547.3 million. In terms of liquidity, as of the first quarter, we were undrawn on our ABL with $3.1 million in letters of credit, with $131.9 million of availability and liquidity of $271.6 million, including $139.7 million in cash. DXP is poised to execute on our outlook strategy. We anticipate closing another acquisition before quarter end. In terms of acquisitions, we closed on three acquisitions during the quarter: Hennesy Mechanical Sales, Kappe and Associates, and Pro-Seal. We look forward to them fully reporting with us for the second quarter of 2024. Hennesy and Kappe provide DXP with leading platforms within the municipal industrial water and wastewater industries, and Pro-Seal provides DXP with a leading rotating equipment and steel provider in Michigan and Alaska. Welcome to DXP, Hennesy, Kappe, and Pro-Seal. DXP's acquisition pipeline continues to remain active, and the market continues to present compelling opportunities. As we discussed during the Q4 earnings call, we anticipated closing three acquisitions before mid-year, and we have accomplished that goal as of Q1. We have a letter of intent and plan on closing another acquisition before the second quarter ends, bringing that to a total of four acquisitions by the end of the second quarter. That said, we remain comfortable with our ability to execute on our pipeline, and valuations continue to remain reasonable. Regarding capital allocation, we repurchased or returned $16.8 million to shareholders via share repurchases in Q1. As previously mentioned, we will continue to be opportunistic as we move through 2024 and support our shareholders as we navigate through cycles. In summary, our resilient and critical MRO supply chain solutions, combined with our project capabilities and exposure to sustainable secular trends, including water and wastewater and various energy markets, will drive our future sales and profitability. Heading into 2024, we refreshed our balance sheet, which has allowed us to continue to invest in the business both organically and through acquisitions, while also returning capital to shareholders. We are excited about the future. We will keep our eyes focused on the aspects we can control in the upcoming quarters. We are excited because there is still substantial value embedded in DXP. We look forward with great confidence to the future of sustained growth and market performance. I will now turn the call over for questions.

Your first question comes from the line of Cole Couzens from Stephens.

I just wanted to start here on ADS trends. If you could, can you walk through what you're seeing quarter-to-date in April and early May on both an organic and inorganic basis?

What I'll do is, Cole, I'll walk you through kind of the quarter and through April. I don't have a view given we're only 9 days into May and a fair amount of our sales per business day usually come between the mid to the back end of the month. So I wouldn't want to forecast anything there. But then I'll get to your second half of your question, which was kind of the trends maybe on an organic versus acquisition basis, if you will. Going back from January, sales per business day were $5.9 million. February was $6.3 million. And then March, as I mentioned in the script, was $7.5 million. April was $6.8 million per day. So April is up 2.7% year-over-year on a comparative basis. Excluding, if you will, some of our recent acquisitions, meaning Pro-Seal, Kappe, Hennesy, Alliance, BordaValve, and Reardon, the trend on sales per business day was $5.8 million in January, $6.2 million in February, $7.2 million in March, and then $6.4 million in April.

Is that pretty reflective of typical seasonality in your view?

Yes. I think what we saw, if you were to look at the timeframe last year, you always get a quarter in push in March. And so we experienced that again this year. And then as we jumped into April, right, we kind of trend above, I'll call it, that Q1 average as we move into Q2. And so that we're following that, not in the same quantum as last year, but we are still growing year-over-year from a sales per business day perspective.

And do you mind reminding us how many selling days you're assuming here in Q2 and maybe for the remainder of the year as well?

Yes. So we had 63 selling days, obviously, in Q1, which, by the way, was one less day than this time last year. So on a comparative basis, you do need to factor that in just in terms of the performance year-over-year. And then for Q2, we're forecasting 64 days for Q2 with 22 already happening in April. For the year, it's usually around 252 days. I have not literally put pen to pad, but it's usually the days usually fall out between 252 and 253.

Okay. And then last one on revenue. I think it was down a little bit year-over-year. What are some of the underlying end markets or product categories that were softer here on a year-over-year basis? And then on a sequential basis, it seems like demand is broadly consistent with the first quarter. But is there anything notable in any market or product category that's changed versus last quarter?

Yes. I don't know if David has any insights here, but from my perspective, we saw some typical issues. We do have project work, which we talk about frequently in our Innovative Pumping Solutions segment. It's always hard to time when exactly some of those jobs will ship. Our backlog is pretty robust. So I don't know if it's necessarily market-driven where I'm going. Some projects, whether water or wastewater, are energy-related and didn't quite shift the year-end, and so some of those will happen. Once again, not to get into the details, but some of that is on a percentage of completion and some of it is just the project work has not started. I don't know if David has any insights there.

Well, there's not a deviation around product categories; in other words, pumps were consistent. Safety was consistent, middle working actually up a little bit. But it was pretty much consistent across the board on product category.

Okay. That's helpful. And then across each of the three segments, as we kind of move into Q2 here, just directionally, how are you guys expecting revenue to progress on a sequential basis from here?

So just quickly, almost every quarter, the first quarter and the second quarter is better than the first quarter, and the third quarter is better than the second quarter. So that almost invariably happens unless there's a big swing in days or something happens.

I agree with David. As everyone knows, we don't typically provide guidance. However, based on our observations, sales per business day showed a year-over-year increase of 4.5% in January, 1.9% in February, and a slight decrease of 5% in March. In April, we rebounded with a 2.7% increase. When you look at these figures collectively, we're seeing a trend in the 1.5% to 2% range in actual performance. As things stand, we don't anticipate any major changes. We remain focused on acquisitions, as we are in the business of purchasing and expanding DXP, although we can't predict the timing of these events and will make announcements as necessary.

A little color on what I said; I took a broader picture, but what I said is part of that is simply our manufacturers trying to ship everything towards the end of the quarter because we're all disciplined around quarters. So we actually do quite a bit of business in the last two days of a month. Then the last two days of the quarter gets a little crazy too. So I just give you a reason for it.

Yes, that's helpful. And just in terms of EBITDA margin, I know you guys kind of acknowledged this, but 10% to the goal in our view, you're kind of in that range in Q1. I know there's some seasonality impacting it in Q1. But going forward here in Q2, do you think that 10% level is attainable, or should it move higher or lower for any reason?

Yes. We definitely think the 10% call is attainable. You hit it spot on. There was some seasonality in just some one-time unique costs, which we conservatively included as add-backs to adjusted EBITDA, putting us at 9.8%. That said, as we move into Q2, Q3, and Q4, 10% is definitely attainable given our mix today, and we would see that materializing.

And to expand on that a little bit, given your mix, is most of that going to be on the gross margin line? I think you've seen some good improvement there? Or do you think you’ll drive leverage as well?

Yes. I mean, we've had consistent 30%-plus gross margins here more recently, and that's definitely contributed to the lift in EBITDA margins. But we also get the operating leverage as we grow the business and grow sales, as I mentioned in my script. We expect to continue to see growth, and with that, you get some operating leverage out of the system. The wins that are always challenging for everybody, including us, there is not just inflation. Inflation from a product perspective is good for DXP, but from a people perspective, we've got to work through that as merit and pay raises come through the system. We've done a good job thus far of managing that, but those pressures have been pretty consistent over the last 6 to 12 months.

I'll add to that a little bit. There's a big push to get incremental gross profit margins up. Not only to pass on inflation and cost of products going up, but actually to get a little more for ourselves because our labor costs are going up and everything is increasing. So we're pushing the value. Consistent with that on capital allocation is we're doing our acquisitions in areas like air compressors and water, which have higher gross profit margins and higher EBITDA margins. So that's healthy.

Got it. And I’ll come back to capital allocation in a little bit. But just higher level too, you guys have more recently last quarter and I think this quarter in the press release talked about some growth initiatives here. Can you walk through what exactly those are and maybe what inning we're in? And if everything goes right and you can execute the playbook, what you hope to achieve by executing that?

That's an interesting question. I'm not entirely comfortable sharing the details of our sales growth strategies. However, I can mention that we have a dedicated team focused on securing national accounts in our rotating equipment sector. Companies like AIT handle national accounts for bearings and power transmission, and we're following a similar approach with our pumps and rotating equipment. This effort is yielding positive results, even though it may not always result in fully secured national accounts. Nevertheless, it consistently generates additional business. Additionally, we are enhancing our product offerings and capabilities, which are being well received by our current sales team and involve minimal extra costs. This is contributing to our growth. We continue to promote integrated supply through our supply chain services and have some promising deals in the pipeline that we hope to finalize, which could have a significant impact.

The only thing I would add there, Cole, is then, obviously, we complement that organic growth with acquisitions. For strategic reasons, we disclose less specific guidance. We view ourselves as a growth company. We have our organic plans, and we do that through acquisitions with absolute disclosure given other firms, private equity, etc. David hit it right on the nose.

Great, that's good color, and completely understand there. Lastly, just to circle up on capital allocation. You guys have done a good job executing on some deals here, and it sounds like there's more in the pipeline. Is there any more color you can provide on what those deals look like? I know you mentioned earlier in the call that some of your diversification efforts have reaped a lot of benefits. So just any color in terms of size or end market would be appreciated?

Yes, yes. I'll start with the latter. From an end markets perspective, everyone knows we've had a real push on water and wastewater. I'll call it likely towards more Q3 and Q4; we'll have one to two acquisitions on the water and wastewater side continue to close. One of our more recent themes is we found some nice, I'll call it, down-the-fairway rotating equipment-focused industrial distributors. The one likely to close before the end of Q2 follows in that path. It will be just a nice tuck-in acquisition; we probably won't have a lot of fanfare around that one just because it's very similar to Pro-Seal in terms of relative size. It's closer to our average acquisition size of $25 million to $35 million in revenue, but they have very nice profitability. So we'll just kind of move forward, people will start to see that early in our results in Q2, but then as we move into Q3 and Q4. So that's what I would say just in terms of the acquisition focus and what people will see over the short to medium term.

Okay. Great. I appreciate the time, guys. Thanks.

And this does close out our Q&A session. I would like to thank our speakers for today's presentation, and thank you all for joining us. This concludes today's conference call. Enjoy the rest of your day. You may now disconnect.