DXP Enterprises (NASDAQ:DXPE) Inc. (DXP), a leading service and product provider, announced a strong third quarter for the fiscal year 2024, with a 12.8% increase in total sales to $472.9 million. The company's Innovative Pumping Solutions (IPS) segment led the growth with a 52.3% rise in sales. Earnings per diluted share improved significantly to $1.27 from $0.93 in the same quarter of the previous year. The company also highlighted its successful acquisition strategy, with seven acquisitions completed year-to-date and plans to close two more before the end of the first quarter of 2025.
Key Takeaways
- DXP Enterprises' total sales rose by 12.8% in Q3 2024.
- The IPS segment experienced a notable 52.3% increase in sales.
- Earnings per diluted share grew to $1.27, up from $0.93 last year.
- The company completed seven acquisitions and plans for two more by Q1 2025 end.
- DXP expects continued growth in the energy and water markets.
Company Outlook
- DXP anticipates sustained growth in the energy and water segments.
- The company aims to expand service and repair offerings.
- It is focused on maintaining double-digit EBITDA margins.
- DXP is positioning for a strong start to fiscal 2025.
Bearish Highlights
- Supply Chain Services reported flat growth year-over-year.
Bullish Highlights
- The Water segment now constitutes 45% of IPS sales, up from 31% last year.
- Service Centers saw a 7.6% year-over-year sales growth.
- Strong project bookings in energy and water/wastewater sectors.
- Diverse end markets and strength in U.S. Safety Services and Metal Working Products support resilience.
Misses
- No specific misses were reported in the earnings call.
Q&A highlights
- CEO David Little expressed confidence in outgrowing the market and sustaining this trend.
- The company is excited about the future and is focused on delivering a differentiated customer experience.
- CFO Kent Yee emphasized the ongoing execution of the company's acquisition strategy.
DXP Enterprises' robust performance in the third quarter, particularly in the IPS segment, underscores the company's strategic focus on high-growth areas such as water and energy. The company's effective acquisition strategy is expected to further bolster its market position. With the anticipation of new account implementations in the upcoming quarters, DXP is poised to continue its trajectory of growth and profitability.
Full transcript - DXP Enterprises Inc (DXPE) Q3 2024:
Novi, Conference Operator: Thank you for standing by. My name is Novi, and I will be your conference operator today. At this time, I would like to welcome everyone to the DXP Enterprises Inc. Third Quarter 2024 Earnings Release and Conference Call. All lines have been placed on mute to prevent any background noise.
After the speakers' remarks, there will be a question and answer session. Session. Thank you. I would now like to turn the call over to Kent Yee, Chief Financial Officer. Please go ahead.
Kent Yee, Chief Financial Officer, DXP Enterprises Inc.: Thank you, Novi, and thank you, everyone. This is Kent Yee, and welcome to DXP's Q3 2024 conference call to discuss our results for the Q3 ending September 30, 2024. Joining me today is our Chairman and CEO, David Liddle. 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 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 Q3 performance and financial results. David? Thanks, Kent, and
David Little, Chairman and CEO, DXP Enterprises Inc.: thanks to everyone on our 2024 Q3 conference call. Kent will take you through the key financial details after my remarks and after our prepared comments, we will open for Q and A. It is my privilege to share DXP's 3rd quarter results with you on behalf of over 2,000 989 DXPeople. Congratulations to all our stakeholders and a special thank to you and our DXPeople you can trust. We are pleased to see end market demand and DXP's performance continued through Q3.
We remain at record levels as we move into the last quarter of 2024. 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 fiscal twenty twenty four. We remain focused on serving our customers and providing products and services that help them save money, consolidate their MRO spend, manage inventory and provide solutions to solve their revolving 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 fiscal 2023 2024 top line and bottom line growth both organically and through acquisitions. That said, our growth strategies are working and our acquisition pipeline should add to our results as we close out fiscal 2024 and going into fiscal 2025. We continue to be excited about the future and delivering a differentiated customer experience, creating an engaging winning culture for DXP and investing in our business to strengthen our core capabilities and drive long term growth.
Year to date through September 30, total sales were up 4.7% and adjusted EBITDA is up 6.5%. Last 12 months sales and adjusted EBITDA were $1,740,000,000 $183,000,000 respectively with adjusted EBITDA margins of 10.5%. Moving to our Q3, total DXP revenue of $47,900,000 for the Q3 of 2024 was a 12.8% increase year over year with adjusted EBITDA of $52,400,000 for the 3rd quarter. In terms of Q3 financial results, Innovative Pumping Solution led the way growing sales 52.3 percent year over year to $89,800,000 following by service centers growing sales 7.6% year over year to 316,800,000 dollars and supply chain services flat or growing 0.7 percent year over year to $66,200,000 In terms of IPS, our innovative pumping solutions, we have 2 broad markets tied to capital budgets and or project work, DXP's heritage energy related project work and DXP Water. Year to date DXP's water is 45% of IPS sales versus last year at this time it was 31%.
As we have grown our DXP Water platform, we have increased both gross margins and operating income margins for the segment and for DXP. Our energy related bookings and backlog continues to show resilience and perform above our long term averages, albeit not at all time highs. Additionally, our year to date average remains above our long term average energy IPS backlog going back to 2015, which we mentioned first occurred in Q1 of this year. What this indicates is that we are continuing to get bookings and we feel good at this point in the cycle on the energy and water and wastewater related project work. We look forward to seeing how this impacts our results and project revenue in both energy and water and wastewater as we move through 2024 and into 2025.
We have booked a few large projects in both energy and water that should start recognizing revenues starting in Q1 or Q2 of next year. That said, as we maintain growth, DXP's focus within IPS will be to continue to manage the demand levels we have, finding opportunities in all markets such as energy, biofuels, food and beverage and water and wastewater and manage pricing and delivery while improving and maintaining margins. In terms of service centers, the diversity of end markets, multiple product division approach and our MRO nature within service centers allows us to continue to remain resilient and continue to experience consistent top line year over year growth. From a regional perspective, regions that experienced year over year growth included North Central, North Texas, South Rockies, Southwest and our Canadian Rotating Equipment business. We continue to expect our end markets will remain constructive over the near future.
We have also seen strength in our U. S. Safety Services Division and Metal Working Products division, which is great to see. Supply Chain Services sales have continued to align with performance trends observed in the second half of twenty twenty three. Historically, the later half of the year impacted is impacted by holiday season and there being fewer billing days.
However, Supply Chain Services is anticipating an increase in new accounts implemented in Q4 of 2024 and Q1 of 2025. SCS has also invested in a customer care model allowing customers to utilize DXP's remote technology within the need for full without the need of full time on-site presence. This model enables DXP to extend supply chain services technology to accounts with smaller sites and expand the business relationship. SCS remains committed to expanding our industrial customer base through enhanced marketing and lead generation tools. As we go into fiscal 2025, we will focus on extending DXP's service and repair offering for rotating equipment and safety services to our existing customers, leveraging the broader DXP capability.
We anticipate this could happen in early 2025. Demand for supply chain services services is increasing because of proven technology and efficiency they perform for all of their industrial customers. DXP's overall gross profit margins for the Q3 were 30.9%, a 94 basis point improvement over 2023. Overall, I'm pleased with our gross margins and our steady improvement over the last 7 quarters. SG and A for the Q3 increased $16,800,000 versus Q3 of 2023.
SG and A as a percent of sales increased going from 21.4% in Q3 of 'twenty three to 22.5% in Q3 of 'twenty four. SC and A continues to reflect our investment in our people and our growth strategies along with improvements in technology and processes to gain future efficiencies. As always, it is my privilege to share DXP's financial results on behalf of our DXPeople. DXP's overall operating income margin was 8.4 percent or $39,600,000 which includes corporate expense and amortization. This reflects an 18 basis point decline in margin versus Q3 of 2023.
We still feel there is opportunity in our operations to be more efficient and we have chosen to invest in the business via people and our operations as we have been focused on growth. Service Centers operating income margins were 14.6%. IPS's operating income margins were 20.3%. Supply Chain Services operating income margins were 8.4%. Overall DXP produced adjusted EBITDA of $52,400,000 in the Q3 of 2024 versus $44,000,000 in the same period of 2023.
This turned into a year over year increase of $8,400,000 or 19.1%. Adjusted EBITDA as a percent of sales was 11.1%, up 59 basis points versus Q3 of 2023 and up 27 basis points versus Q2 of 2024. I am pleased by our performance in the 3rd quarter. DXP continues to make great efforts and adapt as we grow and evolve DXP in a more diversified and less cyclical business, the next chapter. We still have substantial work to do to achieve our goals, but I am confident that the team will continue to execute and drive sales and profitability.
We are growing sales more than the market and expect that into the near future. We continue to make progress on our growth strategies and our commitment to our customers is strong. We are driving growth and improvements at DXT. We look forward to navigating and working through the remainder of fiscal 2024 and launch into fiscal 2025 further developing the next chapter. We continue to build our capabilities to provide a technical set of products and services in all our markets.
We make DXP very unique in our industry and gives us more ways to help our customers win. Finally, I would like to thank our DXP people for continuing to maintain 10% plus EBITDA margins and hitting a new quarter sales high in Q3. Let's do it again in Q4. Q3 was another great quarter as we continue to have success in 2024 and prepare to launch ourselves into 20 25. We remain excited for what is next.
With that, I will now turn it back to Kent to review our financials in more detail.
Kent Yee, Chief Financial Officer, DXP Enterprises Inc.: Thank you, David, and thank you to everyone for joining us for our review of the Q3 2024 financial results. Q3 financial performance reflects DXP's ability to continue to successfully navigate through the market and execute and create value for all our stakeholders. Our Q3 results also reflect another record sales watermark along with a new all time high in adjusted EBITDA margins. As it pertains specifically to our Q3, DXP's 3rd quarter financial results reflect solid sales growth within IPS and continued strength within the energy and water bookings and backlog along with an accelerating contribution from DXP Water. Year to date in line service center performance marked by gross margin strength and stability and a pickup in sales performance from Q2 to Q3, continued contribution from acquisitions along with closing an additional acquisition during the Q3 and closing 2 subsequent to the quarter or bringing the total completed year to date to 7 acquisitions and consistent operating leverage leading to sustained adjusted EBITDA margins.
Total (EPA:TTEF) sales for the 3rd quarter increased 6% sequentially to a record $472,900,000 Acquisitions that have been with DXP for less than a year contributed $28,500,000 in sales during the quarter. Average daily sales for the Q3 were $7,390,000 per day versus $6,960,000 per day in Q2 $6,660,000 per day in Q3 2023. Adjusting for acquisitions, average daily organic sales were $6,940,000 per day for the Q3 of 2024 versus $6,590,000 per day during the Q3 of 2023. That said, the average daily sales trend during the quarter went from $6,620,000 per day in July to $8,770,000 per day in September, reflecting a quarter end push and benefit from acquisitions as we closed out the Q3. In terms of our business segments, Innovative Pumping Solutions grew 22.42 percent sequentially and 52.34 percent year over year.
This was followed by service centers growing 3.36% sequentially and sales increasing 7.6% year over year. Supply chain services grew 0.94% sequentially and increased 0.69% year over year. In terms of Innovative Pumping Solutions, we continue to experience increases in the energy related bookings and backlog as well as the water and wastewater bookings and backlog. Our Q3 energy related average backlog grew 39.1% over our Q2 average backlog and continues to be ahead of all our averages. It is worth noting that our Q3 energy backlog includes a significant project win that is currently estimated to meaningfully impact our sales performance in Q1 or Q2 of next year.
Adjusting for this project, our Q3 energy backlog grew 8.9% sequentially. The conclusion continues to remain that we are trending meaningfully above all notable sales levels and we are moving towards 2018 2019 levels based upon where our backlog stands today. On a 9 month comparative basis, our native energy IPS business is up 31.1% year over year. We expect this to continue for the remainder of 2024. We also see strength in our IPS Water backlog as it continues to grow due to a combination of organic and acquisition additions.
In terms of our Service Centers, our Service Center performance reflects our internal growth initiatives along with our diversified and evolving end market dynamics. On a comparative basis, our Q3 of 20 strongest quarter within Service Centers over the last 7 quarters and sets a new sales high watermark. Regions within our Service Center business segment, which experienced year over year sales growth include the South Rockies, Southeast, Southwest, Alaska and North Central. From a product perspective, we also experienced strength in our U. S.
Safety Services and Metal Working Product divisions and Canadian Rotating Equipment, which is all great to see in points to strength in our energy markets and or exposure. As discussed in Q2, Supply Chain Services sales continue to perform in line with the performance we experienced in the second half of twenty twenty three. Supply Chain Services sales grew 0.94% sequentially and increased 0.69% year over year. Our results have been impacted by facility closures with existing customers as well as the streamlining efficiency we bring to our customers that we mentioned back in Q4 of last year. As David mentioned in terms of our outlook, we are anticipating an increase in new accounts implemented in Q4 of this year and Q1 of next year.
SCS has also created a customer care model that focuses on remote technologies without the need for a full time on-site presence. Additionally, as we go into fiscal 2025, SCS will focus on extending DXP services and repair offerings for rotating equipment and safety services to our existing customers leveraging the broader DXP capabilities. We anticipate this could happen in early 2025. Turning to our gross margins. DXP's total gross margins were 30.89%, a 94 basis point improvement over Q3 of 2023.
This improvement is attributed to strength in gross profit margins within service centers or a 99 basis point improvement from Q3 of last year. Additionally, the accretive contribution from acquisitions at a higher overall relative gross margin versus our base DXP business helped drive consistent IPS gross margins. Acquisitions continue to be accretive to both our gross and operating margins. That said, from a segment mix sales contribution, Service Centers contributed 66.99 percent, Innovative Pumping Solutions 18.99 percent and supply chain services was 14.01%. IPS has notably contributed more to the overall mix of DXP going from 15% of sales in Q1 to 19% in Q3.
In terms of operating income combined, all three business segments increased 64 basis points sequentially and business segment operating income margins are $6,900,000 versus the Q2 of this year. This primarily was driven by improvements in operating income margins across Service Centers and IPS, but more notably within IPS. The improvement in Innovative Pumping Solutions reflects the impact of our water and wastewater acquisitions at a higher relative operating income margin and a growing percentage of revenue or sales mix along with improvements in this quarter within our pump manufacturing operations. DXP Water has gone from 28% of sales in Q1 of 2023 to over 43% of sales of IPS in the Q3 of 2024. Total DXP operating income was $39,600,000 in the 3rd quarter or 8.4 percent of sales versus $35,900,000 or 8.6 percent of sales in the Q3 of 2023.
Our SG and A for the quarter increased $16,800,000 from Q3 of 2023 $6,100,000 from Q2 of this year to $106,500,000 The increase reflects the growth in the business and associated incentive compensation and DXP investing in its people through merit and pay raises. Additionally, this also reflects some unique one time costs and expense associated with our horizontal pump offering. SG and A as a percentage of sales increased 112 basis points year over year to 22.52% of sales and was essentially flat sequentially from Q2 of this year. Turning to EBITDA. Q3 2024 adjusted EBITDA was $52,400,000 Adjusted EBITDA margins were 11.1%.
As discussed in Q1, we expect this to pick up and margins have improved as we've moved through the first half and into the second half of 2024. We continue to benefit from the fixed cost SG and A leverage we experienced as we grow sales as well as the margin accretion and growing scale of the DXP Water acquisitions. In terms of EPS, our net income for Q3 was 21,100,000 dollars Our earnings per diluted share for Q3 was $1.27 per share versus $0.93 per share last year. Conservatively adjusting for one time items, adjusted earnings per diluted share for Q3 2024 was $1.43 per share. Turning to the balance sheet and cash flow.
In terms of working capital, our working capital increased $11,600,000 from June and $26,500,000 from December to $298,600,000 As a percentage of the last 12 months sales, this amounted to 17.2%. This is an uptick from where we have been and reflects the impact of acquisitions and an increase in DXP's capital project work. As we move into fiscal 2025, we will grow into the working capital as a percentage of sales and particularly the impact from recent acquisitions. In terms of cash, we had $35,000,000 in cash on the balance sheet as of September 30. This is a decrease of $104,700,000 compared to the end of Q1 and reflects our acquisition activity as well as an additional $5,000,000 in share repurchases in Q3.
In terms of CapEx, CapEx in the Q3 was $4,000,000 or a decrease of $4,900,000 compared to Q2 and a $2,500,000 increase versus Q3 of 2023. 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 and the next evolution or phase of DXPE. Turning to free cash flow.
Free cash flow for the Q3 was $24,400,000 versus $38,300,000 in Q3 of 2023. This primarily reflects the impacts from our project work, which we have highlighted in the past as requiring 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, which slid backwards on us during the Q3 are increasing or impacting us by $13,100,000 during Q3. Return on invested capital or ROIC at the end of the 3rd quarter was 36% and reflects the improvements in EBITDA and operating leverage inherent within the business. Additionally, it also points to our recent acquisitions performance and their positive contribution and accretive impact to both gross profit and EBITDA.
As of September 30, our fixed charge coverage ratio was 1.7:one and our secured leverage ratio was 2.5:one with a covenant EBITDA for the last 12 months of $200,700,000 Total debt outstanding on September 30 was 544,500,000 dollars In terms of liquidity, as of the Q3, we were undrawn on our ABL with $3,400,000 in letters of credit with $131,600,000 of availability and liquidity of $166,600,000 including $35,000,000 in cash. Subsequent to the quarter end, we successfully reduced borrowing costs by 100 basis points and raised an incremental $105,000,000 DXP is positioning itself to continue to execute on our acquisition strategy. In terms of acquisitions, we have closed 7 acquisitions year to date, including 2 subsequent to the quarter end, and we will look to close at minimum another 2 before the end of the Q1. DXP's acquisition pipeline continues to remain active and the market continues to present compelling opportunities. 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 $5,000,000 to shareholders via share repurchases in Q3. We finished our previous program and we have put in place a new $85,000,000 or 2,500,000 shares share repurchase program. As previously mentioned, we will continue to be opportunistic and support our shareholders as we move through the cycles. In summary, we are excited about the future and building the next chapter. We will keep our eyes focused on those things we can control and what is ahead of us.
We are excited because there is substantial value embedded in DXP and we continue to believe that what is next is greater than what we have already achieved. Lastly, it is worth mentioning that as of Q3 2024, we have remediated and cured all our existing material weaknesses noted in our controls opinion under Item 4, controls and procedures as of September 30, 2024. Thank you to our DXP team for all their effort and commitment to remediate and enhance the financial controls and procedures at DXP. We look forward to great with great confidence to a future of sustained growth and market outperformance. We will now turn the call over for questions.
Novi, Conference Operator: Your first question comes from the line of Tommy Moll with Stephens. Please go ahead.
Tommy Moll, Analyst, Stephens: Good morning and thanks for taking my questions.
Kent Yee, Chief Financial Officer, DXP Enterprises Inc.: Good morning, Tommy. Good morning.
Tommy Moll, Analyst, Stephens: On the acquisition front, I want to make sure I heard you correctly, Kent. So there were 5 year to date through when you closed the books 3rd quarter, Then I guess there were 2 more for a total of 7 in October. And then I think I heard you say another 2 more either by year end or by Q1 end.
Kent Yee, Chief Financial Officer, DXP Enterprises Inc.: Yes, Tommy. I'll walk you through that and thank you for joining us today. We closed 5 as of the end of Q3 and then subsequent to the quarter end just this past Friday, meaning November 1, we closed an additional 2 acquisitions. So that brings us to 7 year to date. And we'll be putting out a press release in the next 24 to 36 hours regarding those.
And then my comments in the script also pointed to that, obviously, we still have got a strong pipeline and we anticipate closing another 2, if you will, before the end of Q1 of next year. Got it.
Tommy Moll, Analyst, Stephens: And anything you can share at this point on the 2 that you closed 1st of the month, even just in terms of end markets or any of the contours that you can share now?
Kent Yee, Chief Financial Officer, DXP Enterprises Inc.: Yes. What I would share today on the call is they were both more typical in the smaller size of our acquisition program. One was another water wastewater acquisition in the Nebraska market. So we're excited to get a little bit of a foothold in Nebraska. And then the other one was a vacuum pump acquisition in California.
So continuing to grow our California region, but it's on the vacuum pump side, which means there's more end market diversification. So everything from semiconductors, food and beverage, pharmaceuticals, etcetera.
Tommy Moll, Analyst, Stephens: So if we roll it all together, I'm going to pivot just to the Q4 here, which is always tricky from a revenue standpoint to try to have a view on. But if you just if you include some of the benefits of the acquisitions that you announced and you look at the $473,000,000 you did in the Q3, does it feel like maybe flat up or down quarter over quarter into Q4 inclusive of the acquisitions that you've announced? But obviously, we haven't seen how big they are yet, but just trying to roll all that together to set an expectation.
Kent Yee, Chief Financial Officer, DXP Enterprises Inc.: Yes, yes. No, no, and I get it. We don't formally provide guidance, but we have our KPIs including sales per business day. I think, Tommy, the way to think about it as we go is, yes, there's fewer days as we head into and so I think everybody's got to factor that in. That said, let me walk you through the sales per business day trend.
And then if you have a follow-up, we can go from there. But I always think that as a broad KPI kind of directionally kind of can point people in a certain direction. And then David may have some comments. But if you start off and just let's just go back to May and then I'll pull it forward. May, we were at $6,430,000 per day June, dollars 7,630,000 per day July, dollars 6,620,000 per day August, dollars 6,89,000 per day September, dollars 8,770,000 per day and then October, we've got $6,990,000 per day.
So that's kind of the sales per business day trend. But once again, we will have fewer days and you get stuck between the days after those holidays as well practically.
David Little, Chairman and CEO, DXP Enterprises Inc.: And then I would just add that historically, the Q4 is a little softer and I'm not sure that
Kent Yee, Chief Financial Officer, DXP Enterprises Inc.: I
David Little, Chairman and CEO, DXP Enterprises Inc.: guess from our perspective bookings are still really strong, our backlog is strong, But I'm not necessarily thinking what will ship or recognize as revenue in the Q4 will I think it will be a little soft.
Tommy Moll, Analyst, Stephens: And Kent, I appreciate the monthly cadence progression you provided there. Just to confirm, those are all on an as reported basis, so that would be inclusive of whatever acquisitions had closed during those months?
Kent Yee, Chief Financial Officer, DXP Enterprises Inc.: Yes, yes, yes. And the 2 more recent ones are up once again on the smaller end. We'll have more detail when we put the press releases out, but call it combined together less than $10,000,000 in sales for those 2 on an annual basis.
Tommy Moll, Analyst, Stephens: Okay. That's very helpful. And just in terms of the days for Q4, do you know what you're dialing in this year? Or should it be fairly similar number of selling days as in the past?
Kent Yee, Chief Financial Officer, DXP Enterprises Inc.: Yes. I think we're coming in at around, once again, just in line with 61 to 62 just practically, I think, have 62, but how the holidays fall, I'm certain.
Tommy Moll, Analyst, Stephens: Oh, yes.
Kent Yee, Chief Financial Officer, DXP Enterprises Inc.: Oh, yes. Okay.
Tommy Moll, Analyst, Stephens: Thank you for unpacking that. That's helpful. David, you commented on the margins, which were again in the double digit range in Q3. And I think you I heard you say, let's do it again here in Q4. So I just want to make sure I heard that correctly that there isn't any kind of reason that should not be the case again in Q4 and also just get your latest and greatest on that performance.
You've been solidly in the double digits for a number of quarters now. There's some acquisition benefits in there, but if there's any kind of operating tailwinds otherwise you want to call out, please do. Thank you.
Kent Yee, Chief Financial Officer, DXP Enterprises Inc.: Sure.
David Little, Chairman and CEO, DXP Enterprises Inc.: And I assume you're talking about EBITDA margins. Yes, adjusted EBITDA. Yes, adjusted EBITDA. Yes, I we're not if you noticed SG and A was probably as a percent of sales was a little high. And so we're I think it's important to note that we're not trying to manage the business to maximize profits at the expense of sales and that in quite the opposite, we have a lot of bets on the table to grow sales and some of those are working out really nicely as you can see.
And then some of them are a little slower and taking bigger investments. So I think that that's good news. The good news is that we're managing the business for growth and not trying to cut every little nickel and dime of the expense out. So I don't think there's any real headwind that will make expenses go down and I don't think there's any reason to think that EBITDA margins are going to go down either. Some of the EBITDA margin growth has been in the water and wastewater area, which is a real focal point of what we're trying to do and our traditional pump business.
So we continue to want to grow those two things. So the acquisitions we're doing are very accretive on EBITDA margins and so we're excited about that. And so I'm like, okay, guys, let's keep up the good work and let's do it again.
Tommy Moll, Analyst, Stephens: Thank you, David. This one's probably for Kent. Just to unpack some of the refinancing you did there in October, Kent. Your gross debt will be up or is up, I guess, now. But then the cost of that debt was reduced, I think, by 100 basis points.
Kent Yee, Chief Financial Officer, DXP Enterprises Inc.: Yes.
Tommy Moll, Analyst, Stephens: So are you able to help us dial in what you're thinking just for interest expense here in the Q4? And then to the extent there's a lot of noise in that number with one time fees that are going to fall away, Can you just calibrate us on what a run rate would look like in the current, SOFR environment?
Kent Yee, Chief Financial Officer, DXP Enterprises Inc.: Yes. No, absolutely, Tommy. I think the absolute run rate interest expense you're seeing even with the incremental, the punch line will be roughly the same. We're running around, I'll call it $15,500,000 to $16,000,000 a quarter. And I don't think that will change.
The benefit we got obviously was the 100 basis points reduction as well as the dry powder, right? And that's really to fuel our acquisition activity. And so I think that's the way to think about if you're thinking about just in terms of how it impacts the P and L. Yes, there'll be the one time. We have to go through the analysis.
We haven't completed it yet where you look at the existing issuance cost and some of it you'll write through. And obviously, we'll be the existing issuance cost and some of it you'll write through. And obviously, we'll be clear about that in Q4. But we haven't necessarily gone through that 100%. But I think the point you're getting at is you want to know kind of the run rate interest cost.
And I think the $15,500,000 to $16,000,000 is fair. Keep in mind, the facility still amortizes 1% per year. So as time goes on, we'll be paying down the facility at 1% per year. And so if that answers your question, Tommy, that's I think how we think about it. It was favorable market conditions and with our pipeline and then kind of with one of the acquisitions we did earlier this year being pretty significant and a contributor in this quarter, it felt right to just reprime, if you will, the balance sheet and go into 2025, putting us in a position to do something similar.
Tommy Moll, Analyst, Stephens: Sure. And on that front, Kent, with regard to capital deployment, did I hear you correctly say that seller expectations currently appear reasonable? I realize that's not specific to any particular deal, but just in general, did I hear you provide that characterization?
Kent Yee, Chief Financial Officer, DXP Enterprises Inc.: Yes. I think that's fair, right? I think sellers in general understood where we were and still are relatively speaking in a higher interest rate environment. And so valuations, I think, from what we see have been fair and reasonable. And our pipeline continues to reflect that.
And so we don't feel like we're having to be too aggressive. Obviously, the businesses that are growing and are highly strategic in many ways to DXP, we're willing to push the valuation pendulum a little bit more. But all in all, I think we're still buying on a blended average across all our deals where we've always historically been and what we've communicated to the market.
Tommy Moll, Analyst, Stephens: Last one from me. David, if you look back over the last handful of years, you've been at this capital deployment program for some time where you're diversifying your end markets, finding pockets of faster growth, higher margin, etcetera, etcetera, Close a number of deals this year, more in the pipeline. One topic that doesn't often get discussed is whether there may ever be a point in the future where you'd be a seller of any part of your portfolio. If you just play it forward and you keep shaping the portfolio as you have been now for some time, do you ever look up and there's a situation where a piece it would make sense to pry out of the portfolio? Or if the answer is too early to tell, that's fine too.
I just I was reflecting on the execution here over multiple years and the business today looks a lot different than it has in prior cycles. So I figured it's worth an ask.
David Little, Chairman and CEO, DXP Enterprises Inc.: Well, I appreciate you making that comment and I appreciate you recognize the diversification that we've been doing. And so I feel really good about that and I feel really good about the fact that we're not going to have any big downturns or anything like that that are hard on us. So I feel really strong about DXP and where it is today. That said, I think you asked a very good question, one that we consider at most Board meetings and that is that are there some pieces that really don't fit the new direction or maybe they don't fit the right financial matrix either that we're trying to accomplish. And so the answer to your question is yes.
And again, I think where we land is that, these everything we're doing makes pretty decent money. And so it's not like we're trying to sell something that's just a dog over here and so we don't have any dogs. If we do, they're all really nice dogs. But anyway, the point besides my joke is that it's a consideration and then because they're all performing to what they feel like they could do and it's going well, it's just a timing issue. It's when do we think is the appropriate time to maximize selling something.
And I'll be the first to admit that selling something has not been in my portfolio. It's not what David Little is all about. I can't remember selling something. So I'm going to acquire and then I try to make it as pretty as I can. But there's some as we've gotten much, much bigger,
Kent Yee, Chief Financial Officer, DXP Enterprises Inc.: there are thoughts around that. Yes, Tom, the only thing I'd add there is, yes, obviously from a fiduciary perspective, we look at it, but we're known in the marketplace as a buy and hold guy. And so we look at things from a fiduciary perspective, but we take it seriously because when sellers sell to us, that's part of the attraction to DXP, right? We're not like our competitors out there and we're not flipping every day. And so I just round out David's comments with that.
We appreciate the question, but it's a delicate walk because one of the big differences for DXP in the marketplace is we're not private equity. We're not a lot of things. And so we take pride in that. So I just kind of add that ending touch there a little bit.
Tommy Moll, Analyst, Stephens: Yes, noted and I appreciate the insight from you both and I'll turn it back.
Novi, Conference Operator: I will now turn the call back over to David Little, Chairman and CEO for closing remarks.
David Little, Chairman and CEO, DXP Enterprises Inc.: And first, Tommy, I would just ask if there's anything else you would like to ask. We appreciate you and the things you do to cover us. If there's not, then thanks for everybody for joining us today. Thanks to all our DXP people out there. Thanks to all the acquisitions that we've done and those people that are joining our DXP team.
I think they learn to appreciate DXP and how we operate and we're all about growth. We're not about trying to lack expenses and take everybody just trying to maximize the last penny. That's not our style. I do appreciate Kent making a point that we're not a portfolio company buying and selling things typically. I think I was thinking of a longer term answer to what I was asking answering and that was that as we get bigger and bigger and bigger and move forward in a direction that's very positive, than as there are some things that may need to be looked at.
So with that said, again, thank you all of DXP people for all you do and let's finish the year strong and off into 2025. Here we go. Thanks.
Novi, Conference Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
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