Business Wire | Nov 6, 2020 08:00AM EST

DXP Enterprises Reports Third Quarter 2020 Results

Nov. 06, 2020

HOUSTON--(BUSINESS WIRE)--Nov. 06, 2020--DXP Enterprises, Inc. (NASDAQ: DXPE) today announced financial results for the third quarter ended September 30, 2020. The following are results for the three and nine months ended September 30, 2020, compared to the three and nine months ended September 30, 2019. A reconciliation of the non-GAAP financial measures can be found in the back of this press release.

Third Quarter 2020 financial highlights:

* Sales were $220.2 million, compared to $327.2 million for the third quarter of 2019. * Earnings per diluted share for the third quarter was $(1.95) based upon 17.8 million diluted shares, compared to $0.71 per share in the third quarter of September 30, 2019, based on 18.4 million diluted shares. Excluding non-cash impairment charges of $48.4 million, earnings per diluted share was $0.16 per share, assuming a 22.4 percent tax rate. * Adjusted EBITDA for the third quarter of 2020 was $13.7 million, versus $13.8 million for the second quarter of 2020 and $28.6 million for the third quarter of 2019. Adjusted EBITDA as a percentage of sales was 6.2 percent versus 5.5 percent for the second quarter of 2020 and 8.7 percent in 2019, respectively. * Free cash flow (cash flow from operating activities less capital expenditures) for the third quarter of 2020 was $29.1 million compared to $5.3 million for the third quarter of 2019.

David R. Little, Chairman and CEO commented, "Our solid execution and focus in a challenging environment continued to deliver reasonable results with significant progress in the quarter serving our customers, most notably $29.1 million in resilient free cash flow and a continued strong balance sheet. Our cash from operations continues to put us in a position to grow the business when the opportunity presents itself and pay down debt, when appropriate. We are aggressively working opportunities to sharpen our focus, transform our operations and continue investing in growth areas, with the customer at the center of everything we do."

Mr. Little continued, "During the third quarter, we achieved $220.2 million in sales, including $5.1 million from acquisitions. In terms of our business segments for the third quarter, sales were $164.9 million for Service Centers, $21.9 million for Innovative Pumping Solutions and $33.4 million for Supply Chain Services. Although the majority of lockdowns have been easing and economic activity is likely near trough levels, visibility on the economic outlook remains extremely limited. Specifically, the risk of a third wave of virus cases, the reinstitution of select geographic lockdowns, and the risk of lingering high unemployment create an uncertain economic environment that likely persists through the rest of 2020, based upon what we know today. Our results demonstrate a significant and sustainable reset to the power of our business to generate positive earnings and free cash flow and capture market share for our future."

Kent Yee, CFO commented, "Overall, we continue to grow sales in the markets we see strength and manage costs while adjusting to the COVID-19 operating challenges. Similar to our second quarter, we delivered financial results that display our ability to adjust to the current levels of activity. Additionally, like many of our peers, during the third quarter we incurred a pre-tax non-cash impairment and other one-time charges of $48.4 million related to goodwill and certain assets. This reflects the proper accounting treatment given the triggering events of COVID-19 and likely reaching a sales bottom and full impact of COVID during the third quarter. We remain positive around all of our acquisitions and their ability to positively contribute to DXP's overall business and strategy. We had another strong quarter of free cash flow generation, producing $29.1 million in free cash flow. As of September 30, 2020, we had $97.4 million in cash and cash equivalents on the balance sheet. Our senior leverage was 2.8:1, well under the Q3 covenant limit of 4.5:1."

Financial Strength and Liquidity

Net debt, calculated as total long-term debt, net of cash and cash equivalents, on our balance sheet as of September 30, 2020, was down to $120.1 million compared to $216.4 million at September 30, 2019. As of September 30, 2020, DXP has approximately $211.6 million in liquidity, consisting of $97.3 million in cash on hand and approximately $114.3 million in availability under our ABL facility.

We will host a conference call regarding September 30, 2020 third quarter results on the Company's website (www.dxpe.com) Friday, November 6, 2020 at 10:30 am CST. Web participants are encouraged to go to the Company's website at least 15 minutes prior to the start of the call to register, download and install any necessary audio software. The on-line archived replay will be available immediately after the conference call at www.dxpe.com.

Non-GAAP Financial Measures

DXP supplements reporting of net income with non-GAAP measurements, including EBITDA, adjusted EBITDA, free cash flow, non-GAAP net income and net debt. This supplemental information should not be considered in isolation or as a substitute for the unaudited GAAP measurements. Additional information regarding EBITDA, free cash flow and non-GAAP net income referred to in this press release are included below under "Unaudited Reconciliation of Non-GAAP Financial Information."

The Company believes EBITDA provides additional information about: (i) operating performance, because it assists in comparing the operating performance of the business, as it removes the impact of non-cash depreciation and amortization expense as well as items not directly resulting from core operations such as interest expense and income taxes and (ii) the performance and the effectiveness of operational strategies. Additionally, EBITDA performance is a component of a measure of the Company's financial covenants under its credit facility. Furthermore, some investors use EBITDA as a supplemental measure to evaluate the overall operating performance of companies in the industry. Management believes that some investors' understanding of performance is enhanced by including this non-GAAP financial measure as a reasonable basis for comparing ongoing results of operations. By providing this non-GAAP financial measure, together with a reconciliation from net income, the Company believes it is enhancing investors' understanding of the business and results of operations, as well as assisting investors in evaluating how well the Company is executing strategic initiatives.

About DXP Enterprises, Inc.

DXP Enterprises, Inc. is a leading products and service distributor that adds value and total cost savings solutions to industrial customers throughout the United States, Canada, Mexico and Dubai. DXP provides innovative pumping solutions, supply chain services and maintenance, repair, operating and production ("MROP") services that emphasize and utilize DXP's vast product knowledge and technical expertise in rotating equipment, bearings, power transmission, metal working, industrial supplies and safety products and services. DXP's breadth of MROP products and service solutions allows DXP to be flexible and customer-driven, creating competitive advantages for our customers. DXP's business segments include Service Centers, Innovative Pumping Solutions and Supply Chain Services. For more information, go to www.dxpe.com.

The Private Securities Litigation Reform Act of 1995 provides a "safe-harbor" for forward-looking statements. Certain information included in this press release (as well as information included in oral statements or other written statements made by or to be made by the Company) contains statements that are forward-looking. These forward-looking statements include without limitation those about the Company's expectations regarding the impact of the COVID-19 pandemic and the impact of low commodity prices of oil and gas; the Company's business, the Company's future profitability, cash flow, liquidity, and growth. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future; and accordingly, such results may differ from those expressed in any forward-looking statement made by or on behalf of the Company. These risks and uncertainties include, but are not limited to; decreases in oil and natural gas prices; decreases in oil and natural gas industry expenditure levels, which may result from decreased oil and natural gas prices or other factors; ability to obtain needed capital, dependence on existing management, leverage and debt service, domestic or global economic conditions, economic risks related to the impact of COVID-19, ability to manage changes and the continued health or availability of management personnel and changes in customer preferences and attitudes. In some cases, you can identify forward-looking statements by terminology such as, but not limited to, "may," "will," "should," "intend," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," "goal," or "continue" or the negative of such terms or other comparable terminology. For more information, review the Company's filings with the Securities and Exchange Commission. More information on these risks and other potential factors that could affect the Company's business and financial results is included in the Company's filings with the SEC, including in the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of the Company's most recently filed periodic reports on Form 10-K and Form 10-Q and subsequent filings. The Company assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

DXP ENTERPRISES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

($ thousands, except per share amounts)



Three Months Ended Nine Months Ended September 30, September 30,

2020 2019 2020 2019



Sales $ 220,193 $ 327,178 $ 772,577 $ 971,721

Cost of sales 158,892 234,474 557,595 702,830

Gross profit 61,301 92,704 214,982 268,891

Selling, general and 53,746 70,987 189,759 209,511 administrative expenses

Impairment and other 48,401 - 48,401 - charges

Operating income (loss) (40,846 ) 21,717 (23,178 ) 59,380

Other expense (income), 320 (25 ) (381 ) 127 net

Interest expense 3,752 4,986 12,059 14,911

Income (loss) before (44,918 ) 16,756 (34,856 ) 44,342 income taxes

Provision for income (10,143 ) 3,606 (7,809 ) 10,655 taxes (benefit)

Net income (loss) (34,775 ) 13,150 (27,047 ) 33,687

Net (loss) income (109 ) 41 (233 ) (172 )attributable to NCI*

Net income (loss)attributable to DXP (34,666 ) 13,109 (26,814 ) 33,859 Enterprises, Inc.

Preferred stock 23 23 68 68 dividend

Net income (loss)attributable to common $ (34,689 ) $ 13,086 $ (26,882 ) $ 33,791 shareholders

Diluted earnings (loss)per share attributable $ (1.95 ) $ 0.71 $ (1.52 ) $ 1.84 to DXP Enterprises,Inc.

Weighted average commonshares and common 17,790 18,442 17,743 18,428 equivalent sharesoutstanding



*NCI represents non-controlling interest

Business segment financial highlights:

* Service Centers' revenue for the third quarter was $164.9 million, a decrease of 14.9 percent year-over-year with a 13.4 percent operating income margin. * Innovative Pumping Solutions' revenue for the third quarter was $21.9 million, a decrease of 73.4 percent year-over-year with an unfavorable 13.3 percent operating income margin. * Supply Chain Services' revenue for the third quarter was $33.4 million, a decrease of 34.8 percent year-over-year with a 8.7 percent operating income margin.

SEGMENT DATA

($ thousands, unaudited)

Three Months Ended Nine Months Ended September 30, September 30,

Sales 2020 2019 2020 2019

Service Centers $ 164,900 $ 193,727 $ 501,333 $ 579,884

Innovative Pumping 21,876 82,169 152,376 237,920 Solutions

Supply Chain Services 33,417 51,282 118,868 153,917

Total DXP Sales $ 220,193 $ 327,178 $ 772,577 $ 971,721





Three Months Ended Nine Months Ended September 30, September 30,

Operating Income 2020 2019 2020 2019

Service Centers $ 22,151 $ 25,071 $ 52,742 $ 67,281

Innovative Pumping (2,913 ) 10,097 16,080 28,924 Solutions

Supply Chain Services 2,900 3,110 10,008 10,980

Total segments $ 22,138 $ 38,278 $ 78,830 $ 107,185 operating income

Reconciliation of Operating Income for Reportable Segments

($ thousands, unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Operating income for reportable segments

$

22,138

$

38,278

$

78,830

$

107,185

Adjustment for:

Impairment and other charges

48,401

-

48,401

-

Amortization of intangibles

3,053

3,806

9,296

11,423

Corporate expenses

11,530

12,755

44,311

36,382

Total operating income (loss)

$

(40,846

)

$

21,717

$

(23,178

)

$

59,380

Interest expense

3,752

4,986

12,059

14,911

Other expense (income), net

320

(25

)

(381

)

127

Income (loss) before income taxes

$

(44,918

)

$

16,756

$

(34,856

)

$

44,342

Reconciliation of Operating Income for Reportable Segments

($ thousands, unaudited)

Three Months Ended Nine Months Ended September 30, September 30,

2020 2019 2020 2019

Operating income for $ 22,138 $ 38,278 $ 78,830 $ 107,185 reportable segments

Adjustment for:

Impairment and other 48,401 - 48,401 - charges

Amortization of intangibles 3,053 3,806 9,296 11,423

Corporate expenses 11,530 12,755 44,311 36,382

Total operating income $ (40,846 ) $ 21,717 $ (23,178 ) $ 59,380 (loss)

Interest expense 3,752 4,986 12,059 14,911

Other expense (income), net 320 (25 ) (381 ) 127

Income (loss) before income $ (44,918 ) $ 16,756 $ (34,856 ) $ 44,342 taxes

Unaudited Reconciliation of Non-GAAP Financial Information

($ thousands, unaudited)

The following table is a reconciliation of EBITDA and adjusted EBITDA, a non-GAAP financial measure, to income before taxes, calculated and reported in accordance with U.S. GAAP.

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Income (loss) before income taxes

(44,918

)

16,756

$

(34,856

)

$

44,342

Plus: interest expense

3,752

4,986

12,059

14,911

Plus: depreciation and amortization

5,304

6,422

17,294

18,693

EBITDA

$

(35,862

)

$

28,164

$

(5,503

)

$

77,946

Plus: NCI loss (gain) income before tax*

183

(55

)

233

228

Plus: Impairment and other charges

48,401

-

48,401

-

Plus: stock compensation expense

983

473

2,870

1,502

Adjusted EBITDA

$

13,705

$

28,582

$

46,001

$

79,676

* NCI represents non-controlling interest

Unaudited Reconciliation of Non-GAAP Financial Information

($ thousands, unaudited)

The following table is a reconciliation of EBITDA and adjusted EBITDA, anon-GAAP financial measure, to income before taxes, calculated and reported inaccordance with U.S. GAAP.

Three Months Ended Nine Months Ended September 30, September 30,

2020 2019 2020 2019

Income (loss) before income taxes (44,918 ) 16,756 $ (34,856 ) $ 44,342

Plus: interest expense 3,752 4,986 12,059 14,911

Plus: depreciation and 5,304 6,422 17,294 18,693 amortization

EBITDA $ (35,862 ) $ 28,164 $ (5,503 ) $ 77,946



Plus: NCI loss (gain) income 183 (55 ) 233 228 before tax*

Plus: Impairment and other 48,401 - 48,401 - charges

Plus: stock compensation expense 983 473 2,870 1,502

Adjusted EBITDA $ 13,705 $ 28,582 $ 46,001 $ 79,676



* NCI represents non-controlling interest

DXP ENTERPRISES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

($ thousands, except per share amounts)

September 30, 2020

December 31, 2019

ASSETS

Current assets:

Cash

$

97,287

$

54,203

Restricted cash

91

124

Accounts receivable, net of allowances for doubtful accounts

152,013

187,116

Inventories

118,864

129,364

Costs and estimated profits in excess of billings

21,544

32,455

Prepaid expenses and other current assets

6,061

4,223

Federal income taxes receivable

6,834

996

Total current assets

$

402,694

$

408,481

Property and equipment, net

57,452

63,703

Goodwill

166,375

194,052

Other intangible assets, net of accumulated amortization

47,616

52,582

Operating lease right-of-use assets

58,657

66,191

Other long-term assets

3,924

3,211

Total assets

$

736,718

$

788,220

LIABILITIES AND EQUITY

Current liabilities:

Current maturities of long-term debt

$

2,500

$

2,500

Trade accounts payable

81,570

76,438

Accrued wages and benefits

21,121

23,412

Customer advances

9,185

3,408

Billings in excess of costs and estimated profits

4,168

11,871

Current-portion operating lease liabilities

16,605

17,603

Other current liabilities

20,723

12,939

Total current liabilities

$

155,872

$

148,171

Long-term debt, less unamortized debt issuance costs

209,813

235,419

Long-term operating lease liabilities

41,324

48,605

Other long-term liabilities

2,007

1,205

Deferred income taxes

4,148

9,872

Total long-term liabilities

$

257,292

$

295,101

Total Liabilities

$

413,164

$

443,272

Equity:

Total DXP Enterprises, Inc. equity

322,641

343,802

Non-controlling interest

913

1,146

Total Equity

$

323,554

$

344,948

Total liabilities and equity

$

736,718

$

788,220

DXP ENTERPRISES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

($ thousands, except per share amounts)



September 30, December 31, 2020 2019

ASSETS

Current assets:

Cash $ 97,287 $ 54,203

Restricted cash 91 124

Accounts receivable, net of allowances for 152,013 187,116 doubtful accounts

Inventories 118,864 129,364

Costs and estimated profits in excess of 21,544 32,455 billings

Prepaid expenses and other current assets 6,061 4,223

Federal income taxes receivable 6,834 996

Total current assets $ 402,694 $ 408,481

Property and equipment, net 57,452 63,703

Goodwill 166,375 194,052

Other intangible assets, net of accumulated 47,616 52,582 amortization

Operating lease right-of-use assets 58,657 66,191

Other long-term assets 3,924 3,211

Total assets $ 736,718 $ 788,220



LIABILITIES AND EQUITY

Current liabilities:

Current maturities of long-term debt $ 2,500 $ 2,500

Trade accounts payable 81,570 76,438

Accrued wages and benefits 21,121 23,412

Customer advances 9,185 3,408

Billings in excess of costs and estimated 4,168 11,871 profits

Current-portion operating lease liabilities 16,605 17,603

Other current liabilities 20,723 12,939

Total current liabilities $ 155,872 $ 148,171

Long-term debt, less unamortized debt issuance 209,813 235,419 costs

Long-term operating lease liabilities 41,324 48,605

Other long-term liabilities 2,007 1,205

Deferred income taxes 4,148 9,872

Total long-term liabilities $ 257,292 $ 295,101

Total Liabilities $ 413,164 $ 443,272

Equity:

Total DXP Enterprises, Inc. equity 322,641 343,802

Non-controlling interest 913 1,146

Total Equity $ 323,554 $ 344,948

Total liabilities and equity $ 736,718 $ 788,220

Unaudited Reconciliation of Non-GAAP Financial Information

($ thousands, unaudited)

The following table is a reconciliation of free cash flow, a non-GAAP financial measure, to cash flow from operating activities, calculated and reported in accordance with U.S. GAAP.

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Net cash from operating activities

$

30,476

$

10,943

$

92,240

$

7,483

Less: purchases of property and equipment

1,397

5,663

6,530

14,247

Plus: proceeds from sales of property and equipment

-

1

123

35

Free cash flow

$

29,079

$

5,281

$

85,833

$

(6,729

)

The following table is a reconciliation of adjusted net income, a non-GAAP financial measure, to net income, calculated and reported in accordance with U.S. GAAP.

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

GAAP Net Income (Loss) :

$

(34,689

)

$

13,086

$

(26,882

)

$

33,791

Impairment and other charges

48,401

-

48,401

-

Adjustment for taxes*

(10,842

)

-

(10,842

)

-

Non-GAAP net income

$

2,870

$

13,086

$

10,677

$

33,791

Diluted earnings (loss) per share:

GAAP

$

(1.95

)

$

0.71

$

(1.52

)

$

1.84

Non-GAAP

$

0.16

$

0.71

$

0.58

$

1.84

* Adjustment for taxes relates to the tax effects of the adjustments that we incorporate into non-GAAP measures in order to provide a more meaningful measure on non-GAAP net income. For tax purposes the year-to-date effective tax rate of 22.4 percent was applied to the impairment and other charges for conservative purposes.

View source version on businesswire.com: https://www.businesswire.com/news/home/20201106005138/en/

CONTACT: Kent Yee, 713-996-4700 Senior Vice President, CFO www.dxpe.com