Business Wire | Aug 6, 2020 08:00AM EDT

DXP Enterprises Reports Second Quarter 2020 Results

Aug. 06, 2020

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

Second Quarter 2020 financial highlights:

* Sales were $251.4 million, compared to $333.3 million for the second quarter of 2019. * Earnings per diluted share for the second quarter was $0.12 based upon 18.6 million diluted shares, compared to $0.73 per share in the second quarter of June 30, 2019, based on 18.4 million diluted shares. * Earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter was $12.6 million compared to $28.7 million for the second quarter of 2019. * Free cash flow (cash flow from operating activities less capital expenditures) for the second quarter was $61.6 million, or 489.5% of EBITDA.

David R. Little, Chairman and CEO, commented, "Before turning to our results, I would like to acknowledge our employees' resilience in the face of this historic COVID-19 pandemic and subsequent decline in activity levels in our oil and gas markets. As we have battled the pandemic for the last four months, our DXPeople have shown outstanding adaptability to the new working environment. They have embraced new work practices to mitigate contamination risks, while delivering outstanding product and service quality for our customers. As the pandemic lingers, we will continue to balance both safety and business priorities and strive to capture more market share. I was pleased with our team's execution on maintaining gross margins, cost discipline and our strong free cash flow generation."

Mr. Little continued, "During the second quarter, we achieved $251.4 million in sales, including $4.5 million from acquisitions. In terms of our business segments for the second quarter, sales were $153.8 million for Service Centers, $60.5 million for Innovative Pumping Solutions and $37.1 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 second wave of virus cases, the reinstitution of select geographic lockdowns, the upcoming election 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, "DXP's second quarter performance in a tough and unique market shows we can execute quickly and aggressively to deliver financial results and free cash flow despite a severe drop in activity. DXP generated $61.6 million in free cash flow for the quarter. Additionally, DXP paid down debt by $15.6 million. Our second quarter EBITDA for debt covenant purposes was $15.6 million. As of June 30, 2020, we had $78.8 million in cash and cash equivalents on the balance sheet. Our senior leverage was 2.4:1, well under the Q2 covenant limit of 4.5:1."

Financial Strength and Liquidity

Net debt, calculated as long-term debt, net of cash and cash equivalents, on our balance sheet as of June 30, 2020, was down to $149.4 million compared to $221.6 million at June 30, 2019. As of June 30, 2020, DXP has approximately $209.7 million in liquidity, consisting of $78.7 million in cash on hand and approximately $131.0 million in availability under our ABL facility.

We will host a conference call regarding June 30, 2020 second quarter results on the Company's website (www.dxpe.com) Thursday, August 6, 2020 at 10 am CDT. 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 online 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 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 and free cash flow 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 June 30, Six Months Ended June 30,

2020 2019 2020 2019



Sales $ 251,401 $ 333,318 $ 552,384 $ 644,543

Cost of sales 181,705 241,331 398,703 468,356

Gross profit 69,696 91,987 153,681 176,187

Selling,general and 62,943 69,140 136,013 138,524 administrativeexpenses

Operating 6,753 22,847 17,668 37,663 income

Other expense 133 185 (701 ) 152 (income), net

Interest 3,930 4,885 8,307 9,925 expense

Income before 2,690 17,777 10,062 27,586 income taxes

Provision for 610 4,427 2,334 7,049 income taxes

Net income 2,080 13,350 7,728 20,537

Net (loss)income (62 ) (109 ) (124 ) (213 ) attributable toNCI*

Net incomeattributable toDXP 2,142 13,459 7,852 20,750 Enterprises,Inc.

Preferred stock 22 22 45 45 dividend

Net incomeattributable to $ 2,120 $ 13,437 $ 7,807 $ 20,705 commonshareholders

Dilutedearnings pershareattributable to $ 0.12 $ 0.73 $ 0.42 $ 1.13 DXPEnterprises,Inc.

Weightedaverage commonshares andcommon 18,575 18,436 18,559 18,421 equivalentsharesoutstanding



*NCI represents non-controlling interest

Business segment financial highlights:

* Service Centers' revenue for the second quarter was $153.8 million, a decrease of 23.1 percent year-over-year with a 8.9 percent operating income margin. * Innovative Pumping Solutions' revenue for the second quarter was $60.5 million, a decrease of 25.4 percent year-over-year with a 14.2 percent operating income margin. * Supply Chain Services' revenue for the second quarter was $37.1 million, a decrease of 29.1 percent year-over-year with a 9.0 percent operating income margin.

SEGMENT DATA

($ thousands, unaudited)



Three Months Ended June Six Months Ended June 30, 30,

Sales 2020 2019 2020 2019

Service Centers $ 153,848 $ 199,978 $ 336,433 $ 386,157

Innovative Pumping 60,479 81,028 130,500 155,751 Solutions

Supply Chain Services 37,074 52,312 85,451 102,635

Total DXP Sales $ 251,401 $ 333,318 $ 552,384 $ 644,543





Three Months Ended June Six Months Ended June 30, 30,

Operating Income 2020 2019 2020 2019

Service Centers $ 13,717 $ 23,230 $ 30,643 $ 42,210

Innovative Pumping 8,565 12,028 18,993 18,827 Solutions

Supply Chain Services 3,353 3,784 7,107 7,870

Total segments operating $ 25,635 $ 39,042 $ 56,743 $ 68,907 income

Reconciliation of Operating Income for Reportable Segments

($ thousands, unaudited)



Three Months Ended Six Months Ended June June 30, 30,

2020 2019 2020 2019

Operating income for reportable $ 25,635 $ 39,042 $ 56,743 $ 68,907 segments

Adjustment for:

Amortization of intangibles 3,046 3,803 6,243 7,617

Corporate expenses 15,836 12,392 32,832 23,627

Total operating income $ 6,753 $ 22,847 $ 17,668 $ 37,663

Interest expense 3,930 4,885 8,307 9,925

Other income, net 133 185 (701) 152

Income before income taxes $ 2,690 $ 17,777 $ 10,062 $ 27,586

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 Six Months Ended June June 30, 30,

2020 2019 2020 2019

Income before income taxes 2,690 17,777 $ 10,062 $ 27,586

Plus: interest expense 3,930 4,885 8,307 9,925

Plus: depreciation and 5,965 6,065 11,990 12,271 amortization

EBITDA $ 12,585 $ 28,727 $ 30,359 $ 49,782



Plus: NCI loss (gain) income 221 (145) 303 283 before tax*

Plus: stock compensation 983 524 1,887 1,029 expense

Adjusted EBITDA $ 13,789 $ 29,106 $ 32,549 $ 51,094



* NCI represents non-controlling interest

DXP ENTERPRISES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

($ thousands, except per share amounts)



As of

June 30, December 31, 2020 2019

ASSETS

Current assets:

Cash $ 78,678 $ 54,203

Restricted cash 91 124

Accounts receivable, net of allowances for 154,804 187,116 doubtful accounts

Inventories 131,828 129,364

Costs and estimated profits in excess of billings 30,376 32,455

Prepaid expenses and other current assets 6,120 4,223

Federal income taxes receivable 332 996

Total current assets $ 402,229 $ 408,481

Property and equipment, net 62,962 63,703

Goodwill 202,502 194,052

Other intangible assets, net of accumulated 50,540 52,582 amortization

Operating lease right-of-use assets 61,187 66,191

Other long-term assets 3,710 3,211

Total assets $ 783,130 $ 788,220



LIABILITIES AND EQUITY

Current liabilities:

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

Trade accounts payable 82,407 76,438

Accrued wages and benefits 21,789 23,412

Customer advances 5,437 3,408

Billings in excess of costs and estimated profits 3,569 11,871

Current-portion operating lease liabilities 15,879 17,603

Other current liabilities 17,638 12,939

Total current liabilities $ 149,219 $ 148,171

Long-term debt, less unamortized debt issuance 220,107 235,419 costs

Long-term operating lease liabilities 44,158 48,605

Other long-term liabilities 1,027 1,205

Deferred income taxes 10,774 9,872

Total long-term liabilities $ 276,066 $ 295,101

Total Liabilities $ 425,285 $ 443,272

Equity:

Total DXP Enterprises, Inc. equity 356,823 343,802

Non-controlling interest 1,022 1,146

Total Equity $ 357,845 $ 344,948

Total liabilities and equity $ 783,130 $ 788,220

Unaudited Reconciliation of Non-GAAP Financial Information

($ thousands, unaudited)



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



Three Months Ended June Six Months Ended June 30, 30,

2020 2019 2020 2019



Net cash from (used in) $ 63,376 $ 1,850 $ 61,764 $ (3,460 ) operating activities

Less: purchases of 1,898 6,272 5,133 8,584 property and equipment

Plus: proceeds fromsales of property and 123 5 123 34 equipment

Free cash flow $ 61,601 $ (4,417 ) $ 56,754 $ (12,010 )



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