Thank you for standing by, and welcome to the DXP Enterprises First Quarter Earnings Call. [Operator Instructions] a reminder that this conference is being recorded. Now I would like to turn the call over to Kent Yee, Chief Financial Officer. Kent, please go ahead.

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 expertise. Our customers have come to expect from DXP and finding ways to help them manage their supply channel increase our uptime, increase productivity, achieve their ESG objectives and successfully run their operations. Many customers, especially those in industrial, energy and utility space 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, as we continue to build on positive financial results in fiscal 2023. And driving further operational improvements while performing for our customers. I personally want to thank all our DXP stakeholders, in particular, 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…

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 and create 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 been successful in building DXP into becoming the best solution for the industrial customers' needs, and we will be successful in continuing to grow sales and earnings and becoming a distributor dedicated to the highest quality of customer service through product [Technical Difficulty]. Increased 1.4% sequentially. [indiscernible] points. 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 include the South Atlantic and North…

[Operator Instructions] Your first question comes from the line of Cole Couzens from Stephens.

Just wanted to start here on ADS trends. If you mind, can you walk through kind of what you're seeing quarter-to-date in April and early May on both an organic and an organic 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 -- and 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.

And how much of that is -- is that pretty reflective of typical seasonality in your view?

Yes. I think what we saw, if you were to look at the time frame 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 2Q 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 your second question, just kind of for Q2. 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 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. And I don't know if David has any insights here, but from my perspective, kind of what we did see was typical, we do have project work, which we talk about pretty frequently in our Innovative Pumping Solutions segment. And so I think it's always hard to time absolutely when some of those jobs will ship. And once again, our backlog is pretty robust. So I think I don't know if it's necessarily in market-driven is where I'm getting that so much is some projects whether water, wastewater, I call it our energy-related didn't quite shift the year-end, and so some of those will happen. Now once again, not to get into the details, but some of that's on percentage of completion and some of that is just the project work hasn't started. But I don't know if David has any insights there.

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

Okay. That's helpful. And then across each of the 3 segments, as we kind of move into 2Q here, just directionally kind of how are you guys expecting revenue to progress on a sequential basis from here?

So just quickly, it's almost every quarter that the first quarter and then the second quarter is better than the first quarter and the third quarter is better than the second quarter. So from a -- that almost happens invariably unless there's a big swing in days or something happens every time. So I don't know if that's totally your question, but I do want to point that out.

I would call -- I was just going to say I agree with David. We formally obviously, as everyone knows, we don't necessarily give guidance. That said, I think I think the trends we see, right, if you go back to the sales per business day, January was up year-over-year, 4.5%. February was up 1.9% year-over-year. March was technically down slightly 5%, but then April we're back 2.7%. I guess the point being is, I think if you kind of blend that a little bit together, what you're seeing is that on a year-over-year basis, we're trending in the, I'll call it, in the 1.5% to 2% a range from an actual performance basis. And I think all things being equal, as we look to the year, we don't see any big shifts. Once again, we're acquisitive. That's always the comment. We're in the business of buying businesses and growing DXP but we can't time those things and we announce those when appropriate.

A little color on what I said, I can took a broader picture. But on what I've said is part of that is just simply our manufacturers trying to ship everything towards the end of the quarter because we're all disciplined around quarters. And so everybody is shipping things. And so we actually do quite a bit of business in the last 2 days of a month. And then the last 2 days of the quarter gets a little crazy, too. So I'd just give you a reason for it.

Yes, that's helpful. And then 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 and I know there's some seasonality impacting it in Q1. But going forward here in Q2, do you guys 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 onetime unique cost, which we conservatively and I've emphasized conservatively included as add back to adjusted EBITDA and that put us at 9.8%. That said, as we move into Q2, Q3 and Q4, 10% 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 to drive leverage as well?

Yes. I mean, hey, 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 per my comments in my script. But -- and I think we'll continue to see that once again, we expect to continue to get some sales growth. And with that, you get some operating leverage out of the system. The wins that are always challenging for everybody, not needing to us is there's 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 raise has come through the system. And we've done a good job thus far of managing that. But those pressures have been pretty consistent over the last 6 to 12 to 9 months very easily.

I'll add to that a little bit. There's a big push to get incremental gross profit margins up. And so not only to pass on inflation and cost of product going up, but actually to get a little more for ourselves because our people cost is going up and et cetera, things are going up. So we're pushing the value. And then consistent with that on capital allocation is we're doing our acquisitions and air compressors and water 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. And -- but just higher level too, I think you guys have more recently last quarter and I think this quarter in the press release, you guys 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 kind of what you hope to achieve by executing that?

Well, that's an interesting question. I'm not 100% sure I want to tell the world what I'm doing to grow sales. Being quite honest. And so we don't talk about that. I think some things that are just obvious we'll talk about a little bit, and that's a team of people that are trying to capture national accounts on the rotating equipment side of our business. Every motion, AIT, people like that do national accounts on bearings and power transmission. So we're in that process of doing that from a pump or rotating equipment scenario. That's working for us. Sometimes, it doesn't always lead to a 100% national account. But in every case, it's creating incremental business for us. We're also -- again, I'm not going to tell you what, but we're adding product and product capabilities and that's incrementally working and it's something that is consistent with the same customer, the same product. It's an attachment to that product. And so it's being readily accepted by our existing sales force. And so there's not really a lot of expense added to doing it. And so that is incrementally helping us. And then we're all the time supply chain services is a really long sale. But when you get one, it's $50 million or $60 million. So it's a large sale. So they don't happen every day. It's a very lumpy business in that sense. But -- so we're always pushing integrated supply through our supply chain service offering. And we've had a little [indiscernible]. We've got a lot of opportunities on the table. And we hope to get some of those closed and if they are, they're pretty significant. And then -- we're just always fighting the B2B channel and spend a lot of money on content development, et cetera, don't play ourselves as in each commerce company or a productivity company designed to help it make it easier for our customers to do business with us. So that's always in the works getting something.

I mean Yes. The only thing I'd add there, Cole, is then obviously, we complement that organic growth with acquisitions. And so I think when it comes to answering your question around our growth initiatives. We do think for strategic reasons kind of here. We disclosed less the world's guidance. Copy caddish is the best way to put it. And so we strategically take the position of yes, articulating that we're always focused on growth. We view ourselves as a growth company. And we always have organic plans if people know DXP, we also do that through acquisitions with absolute disclosure given other strategics private equity, et cetera. I think David hit it right on the nose. So.

Great. That's good color and completely understand there. And lastly, just to circle up on capital allocation. You all 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 kind of on what those deals look like I know you mentioned earlier in the call that kind of 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. So I'll start with the latter. From an end markets perspective, everyone knows, we've had a real push on water wastewater. So I'll call it really very likely towards more Q3, Q4, we'll have 1 to 2 on the water, wastewater side continue to close. And then kind of one of our more recent themes is we found some nice, I'll call it, down the fairway rotating equipment focused industrial type distributors. So the one likely to close before the end of Q2, it 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 like a Pro-Seal just in terms of relative size -- closer to our average acquisition size of $25 million to $35 million in revenue, but they have very nice profitability. So they've got 10% plus EBITDA margins. And so we'll just kind of move forward with that. And people will see -- 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 kind 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.