Good morning, my name is David, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the DXP Enterprises 2021 Fourth Quarter and Fiscal Year 2021 Results Conference Call. Today's conference is being recorded. [Operator Instructions]. Thank you. Kent Yee, CFO, you may begin your conference.

Thank you, David, and thank you to everyone joining us today. This is Kent Yee, and welcome to DXP's Q4 2021 Conference Call to discuss our results for the fourth quarter and fiscal year ending December 31, 2021. 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 an accompanying investor presentation are now available on our website at ir.dxpe.com. I will now turn the call over to David to provide his thoughts and a summary of our fiscal 2021 and fourth quarter results. David?

Good morning. Thank you, Ken, and thanks to everyone for joining us today on our 2021 fourth quarter and year-end conference call. I will begin today with some perspectives on our fourth quarter and year-end results, current industry conditions and our position going forward. Ken will then take you through the key financial details after my remarks. After his prepared comments, we will open for Q&A. As we all know, everyone continues to navigate through COVID and COVID-related challenges for 2021, and I am proud of the courage, compassion and commitment demonstrated by our DXPeople throughout the year. There is no question 2021 was an extraordinary year. It continued to remain challenging for us, our customers, our DXPeople, our suppliers and our communities. But even in an incredible dynamic market environment, DXPeople came together, we stayed true to our strategy, remain customer-driven, and though we still have a lot of work to do, I am proud of the fact that we delivered strong results for our shareholders. DXP started fiscal 2021 believing financial results were not going to become easy and we were going to have to take market share where we could. The pace and magnitude of recovery would vary greatly from geography, customer type and end markets. This largely proved to be true as the economy continued to recover from the short, but deep recession the marked the pandemic's early months and days. The subsequent robust growth that followed in certain markets began to put enormous pressure on the supply chain, triggering levels of inflation not seen in decades. By year-end, interest rate hikes were widely expected. Markets entered into a new uncertainty. While we don't expect fiscal 2022 to look like 2021, DXP's confidence is as strong as it ever has been. Our strategy is working. We…

Thank you, David, and thank you to everyone. Fiscal 2021 financial results. 2021 turned out to be another unique year as we moved through the COVID-19 and experienced new and related challenges. Despite these challenges, DXP successfully navigated through the year and was able to execute and create value for all our stakeholders. Overall, DXP's fiscal 2021 financial results were good to see and reflect the following: diversifying our end markets with strong acquisition activity, completing 3 acquisitions in 2021 after completing the 4 at the beginning of the year or on December 31 of last year. Sales improving further from the ongoing pressures of COVID-19, with sales per business day averaging 4.5 million sales per business day in 2021. Improved business segment strength, with year-over-year growth in Service Centers and Supply Chain Services despite the first half of 2021 presenting. Two quarters of sequential growth in the IPS backlog during the back end of the year, gross margin improvement year-over-year and opportunistic share repurchases, returning $33.5 million in capital back to shareholders. Essentially, a great transition year, and one that will position us well for 2022 and beyond. Total sales for the fourth quarter increased sequentially 1.3% to $293.1 million, reflecting significant improvement in sales per business day going from $4.5 million per day in sales in Q3 with 64 business days to 4.8 million sales per business day with 61 days in Q4. Additionally, this reflects impacts from supply chain shortages and sales getting pushed into 2022. Acquisitions contributed $43.5 million in sales during the quarter. Total sales for DXP for fiscal 2021 were $1.1 billion, increasing 10.8% compared to fiscal 2020. For the full year, acquisitions contributed $147.5 million in sales. Average daily sales for the fourth quarter, as I mentioned, were $4.8 million per day versus…

[Operator Instructions] We'll take our first question from Tommy Moll with Stephens.

I wanted to start for your oil and gas customers. With crude here above $100, what if any, kind of change in appetite for spend are you seeing there? And especially on the pricing side, I would assume you're probably seeing some input inflation, and obviously, these customers are realizing much higher prices on their side. So do you have any kind of incremental pricing power in this environment that might be a tailwind to margins?

Yes. Yes. First of all, let me say that we're kind of moving ourselves away from oil and gas and yet we sell a lot of product into that marketplace and we'll continue to do so. One of the bigger opportunity for IPS though is to sell a lot of alternative fuel type projects and also carbon capture stuff and things to -- improves our environment, which is pretty exciting for us and pretty exciting for DXP as kind of creating a whole new market, and that's when we're kind of expanding there. But back to your question. Certainly, people are spending money to produce as much as they can. Drilling is going back up, but those budgets are not -- they're nowhere nearly as big as they used to be, but they're still increasing. So we're seeing activity at our IPS segment, both for alternative fuels, environmental and gathering systems and things that help produce more. So all of that looks really, really good for IPS. Our costs, you say they're getting more at the wellhead for their product, and they certainly are. I'm a big fan that that's too high. It will ultimately, somewhere along the line at all, even out towards probably the right amount, but the perfect price of oil, we always talk about that. But it's not at $100 plus, I'll just tell you that. So I'm worried about how it affects the rest of our business. But back to the oil and gas part, people costs are going up. Our suppliers are raising their prices because their people costs are going up. Steel has gone, all the commodities have gone up, so -- and then we pass that on. And I think the oil and gas companies expect us to pass that on, whether or not we pass on a little bit for ourselves, that's kind of up to the individual salesperson and the people doing the quoting and stuff, but we try to. And -- but we're just going to have a simply -- that was all stated to kind of point to the fact that, really, our service centers did great supply chain services. I think it's going to have a good year. It's -- it keeps looking like it's going to have a good year. But the real improvement, a real detriment in 2021 was IPS and the capital projects. And then -- but that's coming back and we're expecting them to have a good year.

Moving up to the total company level and just looking at your daily sales, it sounds like most to the second half of last year was quite strong. And I'm curious, now we're most of the way through the first quarter here, just what kind of commentary could you offer on, I don't know if you want to go month by month or quarter to-date, year-to-date? Just any context you could give us on how daily sales have progressed?

Yes. Tommy, this is Kent. What I'll do is, I'll jump in here and just give you the trends as I normally do. Sometimes I caveat the sales business day, but I'll just pull it forward from the Q3 average and then kind of the last 5 months, if you will. So for Q3, we averaged $4.5 million per day. In October, it was $4.7 million per day. In November it was $4.6 million per day. In December, it was $5.1 million per day. January was $4.1 million per day, January is usually always a soft month, kind of coming out the shoe at the beginning of the year. And in February, we kicked up to $4.9 million per day. So trending in the right fashion and increasing month over month, so we like what we see. Now some of that does include acquisitions to be fair. But without getting into the detail, we're seeing the incremental increase in both sales per business day and when all emphasizes our backlog as well. We're seeing remarkable increases in our backlog. Now, some of that's driven by the fact that there are the supply chain issues and some sales are getting pushed out, but the net trends lead to a favorable 2022 once again.

Yes. Moving to expenses here, on operating expense. I think you called out in the prepared remarks some of the drivers in fourth quarter moving higher, one of which was auditor-related. But as we move into this year, 2022, are there any factors you would point us to, just if we think about where that expense line was in Q4? Any factors that would drive that higher or lower as we move through this year?

Yes. Let me -- Tom, in terms of the answer to that question, let me just retrace a little bit, some of those buckets, and put some numbers around it and then kind of then specifically answer your question, if you will, kind of going into 2022. In terms of our auditor [ noise ], once again, nothing that [ we, I think, ] wanted to have happen publicly. But once again, I'll just couch it with it was refreshing the kind of be able to move forward and find a firm that we could come alongside for our growth and development. But that created an excess of $1 million to $1.5 million in 2021 that we wouldn't have normally experienced. Increased health care costs, that was another additional $2.0 million. And then in terms of increased insurance costs, another $1.1 million. A lot of that, once again, to your point, was back end weighted, towards the back end of the year, just given a lot of things. In terms of pulling forward as we go into 2022, we are still in the midst of the transition once again. It feels a lot better, but as we transition from McConnell & Jones because we had to have them pick up in Q3 and for the full year audit, there'll still be some expenses as we close out the 10-K and then we will onboard, if you will, with Pricewaterhouse. And so 2022 will probably still be elevated, probably more than likely not at the same levels as 2021, but we will have some elevated costs there. And then just in terms of SG&A going forward, I guess I would couch it in terms of big picture. I think every company in today's environment is receiving pressures around people. Sometimes it gets taglined with the great resignation or just people moving from company to company. I don't think DXP is any different. And so for the value team members, we're trying to do all the right things and retaining those and looking at compensation, and then in general, you have inflationary pressures to -- in general, to kind of meet those demands. So I think you'll see some of that as we kind of move through 2022.

Last one for me just on M&A. It sounds like there may be another deal you expect to close sometime in Q2. I suppose you've given us all the context you can there, given it's not over the line yet. But whatever you could share us about the pipeline in general, the number of opportunities you're looking at versus trend? Any transformative opportunities in the pipeline or more along the tuck-in route that we've seen lately?

Yes. No. And big picture, you know. Some of those themes that are very relevant to DXP got lost and one of those, obviously, with all the auditor [ noise ] was acquisitions, right? We remained acquisitive 7 over the last 12 months. The pipeline continues to grow, is growing in the midst of all that. We obviously just recently closed 2 here already at the beginning of 2022, so Drydon and Burlingame. Not a lot of sales, roughly around $9 million of sales added to DXP. And then in terms of kind of one upcoming, I'll call it closer to our average acquisition size, which average acquisition size is typically $25 million to $35 million plus in revenue. And so we're excited with where our pipeline stands. Some of the dynamics in the pipeline, which you see, the market is very competitive still. And so you do see multiple pressure, but we're still able to find those that are accretive to DXP and are a good fit. And they have the themes of focusing on water, wastewater, and diversity of end markets. And so we're excited to be in 2022, and we're excited to kind of have that pipeline still grow, and see where we end up by the end of 2022 in terms of the number of deals, but a full pipeline.

Tommy, I'd add one -- just one thought is that we're also in pursuit of companies that are in the service business. We're trying to stay away from -- we always think of ourselves as an engineering, customer expert type business, and so we see that we don't want to compete with Amazon. We don't want to compete with the Graingers and et cetera. So companies that are in the service business and then specifically, it may seem enticing to kind of jump back on oil and gas, but we really, we have enough exposure in that market. And so we're looking at other industries that have a high service content.

David. That's all for me. I'll turn it back.

Those are all the questions today. We thank you for your participation. This concludes today's conference. You may now disconnect.

Tommy, if you have anything else you want to add, come on.

Already done.