GlobeNewswire Inc | Sep 9, 2020 06:00AM EDT

September 09, 2020

ATLANTA, Sept. 09, 2020 (GLOBE NEWSWIRE) -- HD Supply Holdings, Inc. (NASDAQ: HDS), one of the largest industrial distributors in North America, today reported Net sales of $1.6 billion for the second quarter of fiscal 2020 ended August 2, 2020, a decrease of $72 million, or 4.4 percent, as compared to the second quarter of fiscal 2019.

Our highest priority remains the health and safety of our associates and our customers as we continue to support the operations and re-opening of living spaces, job-sites and work places, stated Joe DeAngelo, Chairman and CEO of HD Supply. Our financial strength and steadily improving results reflect the strength of our team and their dedication to safely delivering best-in-class service.

Gross profit decreased $37 million, or 5.8 percent, to $596 million for the second quarter of fiscal 2020, as compared to $633 million for the second quarter of fiscal 2019. Gross profit was 38.4 percent of Net sales for the second quarter of fiscal 2020, a decrease of approximately 60 basis points from 39.0 percent for the second quarter of fiscal 2019.

Operating income decreased $13 million, or 6.2 percent, to $198 million for the second quarter of fiscal 2020, as compared to $211 million for the second quarter of fiscal 2019. Operating income was 12.8 percent of Net sales for the second quarter of fiscal 2020, down approximately 20 basis points from 13.0 percent for the second quarter of fiscal 2019.

Net income decreased $4 million, or 3.0 percent, to $131 million for the second quarter of fiscal 2020, as compared to $135 million for the second quarter of fiscal 2019.

Net income per diluted share increased $0.02, or 2.5 percent, to $0.81 for the second quarter of fiscal 2020, as compared to $0.79 for the second quarter of fiscal 2019.

Adjusted EBITDA decreased $6 million, or 2.5 percent, to $238 million for the second quarter of fiscal 2020, as compared to $244 million for the second quarter of fiscal 2019. Adjusted EBITDA was 15.3 percent of Net sales for the second quarter of fiscal 2020, an increase of approximately 30 basis points from 15.0 percent for the second quarter of fiscal 2019.

Adjusted net income decreased $1 million, or 0.7 percent, to $134 million for the second quarter of fiscal 2020, as compared to $135 million for the second quarter of fiscal 2019. Adjusted net income per diluted share increased $0.04, or 5.1 percent, to $0.83 for the second quarter of fiscal 2020, as compared to $0.79 for the second quarter of fiscal 2019.

As of August 2, 2020, our combined liquidity of $995 million was comprised of $71 million in cash and cash equivalents and $924 million of additional available borrowings (excluding $86 million of permitted borrowings on available cash balances) under HD Supply, Inc.'s senior asset-based lending facility, based on qualifying inventory and receivables. Our combined liquidity as of August 2, 2020 increased by $198 million from the end of first-quarter fiscal 2020 and by $367 million from the end of fiscal year 2019.

Business Unit Performance

Facilities Maintenance

Net sales decreased $69 million, or 8.3 percent, to $761 million for the second quarter of fiscal 2020, as compared to $830 million for the second quarter of fiscal 2019. Adjusted EBITDA decreased $17 million, or 11.4 percent, to $132 million for the second quarter of fiscal 2020, as compared to $149 million for the second quarter of fiscal 2019. Adjusted EBITDA was 17.3 percent of Net sales for the second quarter of fiscal 2020, a decrease of approximately 70 basis points from 18.0 percent for the second quarter of fiscal 2019.

Construction & Industrial

Net sales decreased $2 million, or 0.3 percent, to $793 million for the second quarter of fiscal 2020, as compared to $795 million for the second quarter of fiscal 2019. Adjusted EBITDA increased $11 million, or 11.6 percent, to $106 million for the second quarter of fiscal 2020, as compared to $95 million for the second quarter of fiscal 2019. Adjusted EBITDA was 13.4 percent of Net sales for the second quarter of fiscal 2020, an increase of approximately 150 basis points from 11.9 percent for the second quarter of fiscal 2019.

Second-Quarter Monthly Sales Performance

Net sales for May, June and July of fiscal 2020 were $431 million, $495 million and $626 million, respectively. There were 19 selling days in May, 20 selling days in June and 24 selling days in July of fiscal 2020 and fiscal 2019. Average year-over-year daily sales changes for May, June and July of fiscal 2020 as compared to fiscal 2019 were a decrease of 7.3 percent, a decrease of 4.8 percent and a decrease of 2.0 percent, respectively.

Preliminary August Sales Results

Preliminary Net sales in August 2020 were approximately $518 million, which represents a year-over-year average daily decline of approximately 0.7 percent. Preliminary August year-over-year average daily Net sales change by business segment was 1.1 percent growth in Facilities Maintenance and 2.5 percent decline in Construction & Industrial. There were 20 selling days in both August 2020 and August 2019.

Construction & Industrial Sale Transaction

On August 10, 2020, HD Supply entered into a definitive agreement to sell its Construction & Industrial business to an affiliate ofClayton, Dubilier & Rice for a purchase price of$2.9 billionpayable in cash at closing. Net proceeds from the sale are expected to be approximately$2.5 billionafter taxes and transaction costs. The transaction is expected to close inOctober 2020, subject to customary regulatory approvals.

2020 Outlook

The company will not be providing a third quarter 2020 or fiscal full year 2020 outlook in light of the ongoing coronavirus disease (COVID-19) outbreak. A further discussion relating to the ongoing impact of COVID-19 will take place on our fiscal 2020 second-quarter conference call.

Fiscal 2020 Second-Quarter Conference Call

As previously announced, HD Supply will hold a conference call on Wednesday, September 9th, 2020 at 8:00 a.m. (Eastern Time) to discuss its fiscal 2020 second-quarter results. The conference call and presentation materials can be accessed via webcast by logging on from the Investor Relations section of the company's Web site at hdsupply.com. The online replay will remain available for a limited time following the call.

Non-GAAP Financial Measures

HD Supply supplements its reporting of Net income with non-GAAP measurements, including Adjusted EBITDA, Adjusted net income, and Adjusted net income per diluted share. This supplemental information should not be considered in isolation or as a substitute for the GAAP measurements. Additional information regarding Adjusted EBITDA, Adjusted net income, and Adjusted net income per diluted share referred to in this press release is included below under Reconciliation of Non-GAAP Measures.

About HD Supply

HD Supply (www.hdsupply.com) is one of the largest industrial distributors in North America. The company provides a broad range of products and value-add services to approximately 500,000 customers with leadership positions in the maintenance, repair and operations and specialty construction sectors. Through approximately 270 branches and 44 distribution centers in the U.S. and Canada, the company's more than 11,000 associates provide localized, customer-tailored products, services and expertise.

Forward-Looking Statements and Preliminary Results

This press release includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are based on management's beliefs and assumptions and information currently available to management and are subject to known and unknown risks and uncertainties, many of which may be beyond our control. We caution you that the forward-looking information presented in this press release is not a guarantee of future results, and that actual results may differ materially from those made in or suggested by the forward-looking information contained in this press release. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "plan," "seek," "comfortable with," "will," "expect," "intend," "estimate," "anticipate," "believe" or "continue" or the negative thereof or variations thereon or similar terminology. A number of important factors could cause actual events to differ materially from those contained in or implied by the forward-looking statements, including, without limitation, our ability to obtain the required regulatory approvals for the sale of Construction & Industrial business, our ability to satisfy the other closing conditions related to the sale transaction, our ability consummate the sale transaction on the anticipated timing, if at all the impact of the coronavirus disease 2019 outbreak (COVID-19) on the maintenance, repair and operations and specialty construction sectors, in general, and the financial position and operating results of our company, in particular, which cannot be predicted and could change rapidly and those "Risk factors" in our annual report on Form 10-K, for the fiscal year ended February 2, 2020, filed on March 17, 2020 and those described from time to time in our, and HD Supply, Inc.'s, other filings with the U.S. Securities and Exchange Commission (the SEC), which can be found at the SEC's website www.sec.gov. Any forward-looking information presented herein is made only as of the date of this press release, and we do not undertake any obligation to update or revise any forward-looking information to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.

August 2020 estimates for Net sales are preliminary estimates and are subject to risks and uncertainties, including, among others, changes in connection with quarter-end adjustments. Any variation between HD Supplys actual results and the preliminary financial data set forth above may be material.

HD SUPPLY HOLDINGS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME Amounts in millions, except share and per share data, Unaudited

Three Months Ended Six Months Ended August 2, August 4, August 2, August 4, 2020 2019 2020 2019Net Sales $ 1,552 $ 1,624 $ 2,947 $ 3,117 Cost of sales 956 991 1,801 1,899 Gross Profit 596 633 1,146 1,218 Operating expenses: Selling, general and 366 396 762 788 administrativeDepreciation and 28 26 55 51 amortizationRestructuring and 4 ? 10 (2 )separationTotal operating expenses 398 422 827 837 Operating Income 198 211 319 381 Interest expense 24 28 49 56 Income Before Provision 174 183 270 325 for Income TaxesProvision for income 43 48 67 83 taxesNet Income $ 131 $ 135 $ 203 $ 242 Other comprehensive income (loss):Foreign currency (1 ) ? ? ? translation adjustmentUnrealized gain (loss) oncash flow hedge, net of 2 (16 ) (14 ) (21 )tax of $(1), $5, $5, and$7Total Comprehensive $ 132 $ 119 $ 189 $ 221 Income Weighted Average CommonShares Outstanding (thousands)Basic 160,925 169,546 160,877 169,773 Diluted 161,282 170,057 161,220 170,386 Earnings Per Share: Basic earnings per share $ 0.81 $ 0.80 $ 1.26 $ 1.43 Diluted earnings per $ 0.81 $ 0.79 $ 1.26 $ 1.42 share

HD SUPPLY HOLDINGS, INC.CONSOLIDATED BALANCE SHEETSAmounts in millions, except per share data, Unaudited

August 2, February 2020 2, 2020ASSETS Current assets: Cash and cash equivalents $ 71 $ 34 Receivables, less allowance for credit losses of $22 795 754 and $19Inventories 796 771 Other current assets 84 104 Total current assets 1,746 1,663 Property and equipment, net 375 391 Operating lease right-of-use assets 459 480 Goodwill 1,991 1,991 Intangible assets, net 163 175 Deferred tax asset 2 2 Other assets 15 13 Total assets $ 4,751 $ 4,715 LIABILITIES AND STOCKHOLDERS? EQUITY Current liabilities: Accounts payable $ 493 $ 414 Accrued compensation and benefits 55 71 Current installments of long-term debt 11 11 Current lease liabilities 123 110 Other current liabilities 238 208 Total current liabilities 920 814 Long-term debt, excluding current installments 1,772 2,035 Deferred tax liabilities 36 33 Long-term lease liabilities 352 383 Other liabilities 121 98 Total liabilities 3,201 3,363 Stockholders? equity: Common stock, par value $0.01; 1 billion sharesauthorized; 162.0 million and 161.4 million shares 2 2 issued and outstanding at August 2, 2020, and February2, 2020, respectivelyPaid-in capital 4,110 4,097 Accumulated deficit (919 ) (1,122 )Accumulated other comprehensive loss (66 ) (52 )Treasury stock, at cost, 44.2 million and 44.1 millionshares at August 2, 2020 and February 2, 2020, (1,577 ) (1,573 )respectivelyTotal stockholders? equity 1,550 1,352 Total liabilities and stockholders? equity $ 4,751 $ 4,715

HD SUPPLY HOLDINGS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWSAmounts in millions, Unaudited

Six Months Ended August 2, August 2020 4, 2019CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 203 $ 242 Reconciliation of net income to net cash provided by operating activities:Depreciation and amortization 59 54 Provision for credit losses 10 5 Non-cash interest expense 3 3 Stock?based compensation expense 12 12 Deferred income taxes ? 75 Other 1 1 Changes in assets and liabilities, net of the effects of acquisitions& dispositions:(Increase) decrease in receivables (51 ) (133 )(Increase) decrease in inventories (25 ) (56 )(Increase) decrease in other current assets 7 (2 )Increase (decrease) in accounts payable and 104 85 accrued liabilitiesIncrease (decrease) in other long-term 16 ? liabilitiesNet cash provided by operating activities 339 286 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (33 ) (54 )Proceeds from sales of property and equipment ? 2 Payments for businesses acquired, net of cash ? 3 acquiredNet cash provided by (used in) investing (33 ) (49 )activitiesCASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury shares (3 ) (78 )Repayments of long-term debt (5 ) (5 )Repayments of financing liabilities ? (88 )Borrowings on long-term revolver debt 409 578 Repayments on long-term revolver debt (669 ) (642 )Proceeds from issuance of common stock under 7 employee benefit plans 3Tax withholdings on stock-based awards (4 ) (5 )Other financing activities ? (1 )Net cash provided by (used in) financing (269 ) (234 )activitiesEffect of exchange rates on cash and cash ? ? equivalentsIncrease (decrease) in cash and cash equivalents $ 37 $ 3 Cash and cash equivalents at beginning of period 34 38 Cash and cash equivalents at end of period $ 71 $ 41

HD SUPPLY HOLDINGS, INC.SEGMENT REPORTINGAmounts in millions, Unaudited

Facilities Construction Eliminations Total Maintenance & Industrial OperationsThree Months Ended August 2, 2020Net sales $ 761 $ 793 $ (2 ) $ 1,552 Adjusted EBITDA 132 106 ? 238 Depreciation^(1) & 12 12 ? 24 Software AmortizationOther Intangible 3 3 ? 6 Amortization Three Months Ended August 4, 2019Net sales $ 830 $ 795 $ (1 ) $ 1,624 Adjusted EBITDA 149 95 ? 244 Depreciation^(1) & 11 10 ? 21 Software AmortizationOther Intangible 2 4 ? 6 Amortization Six Months Ended August 2, 2020Net sales $ 1,443 $ 1,506 $ (2 ) $ 2,947 Adjusted EBITDA 230 171 ? 401 Depreciation^(1) & 25 22 ? 47 Software AmortizationOther Intangible 5 7 ? 12 Amortization Six Months Ended August 4, 2019Net sales $ 1,602 $ 1,516 $ (1 ) $ 3,117 Adjusted EBITDA 283 164 ? 447 Depreciation^(1) & 21 21 ? 42 Software AmortizationOther Intangible 4 8 ? 12 Amortization

(1) Depreciation includes amounts recorded within Cost of sales in the Consolidated Statements of Operations.

Reconciliation of Non-GAAP Measures

Adjusted EBITDA and Adjusted net income are not recognized terms under GAAP and do not purport to be alternatives to Net income as a measure of operating performance. We present Adjusted EBITDA and Adjusted net income because each is a primary measure used by management to evaluate operating performance. In addition, we present Adjusted net income to measure our overall profitability as we believe it is an important measure of our performance. We believe the presentation of Adjusted EBITDA and Adjusted net income enhances investors' overall understanding of the financial performance of our business.

Adjusted EBITDA is based on "Consolidated EBITDA," a measure which is defined in our senior credit facilities and used in calculating financial ratios in several material debt covenants. Adjusted EBITDA is defined as Net income less Income from discontinued operations, net of tax, plus (i) Interest expense and Interest income, net, (ii) Provision for income taxes, (iii) Depreciation and amortization and further adjusted to exclude loss on extinguishment of debt, non-cash items and certain other adjustments to Consolidated Net Income permitted in calculating Consolidated EBITDA under our senior credit facilities.

Adjusted net income is defined as Net income less Income from discontinued operations, net of tax, further adjusted for loss on extinguishment of debt, certain non-cash, non-recurring or unusual items, net of tax.

We compensate for the limitations of using non-GAAP financial measures by using them to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Because not all companies use identical calculations, our presentation of Adjusted EBITDA and Adjusted net income may not be comparable to other similarly titled measures of other companies.

Adjusted EBITDA and Adjusted net income have limitations as analytical tools and should not be considered in isolation or as substitutes for analyzing our results as reported under GAAP. Some of these limitations are:

-- Adjusted EBITDA and Adjusted net income do not reflect changes in, or cash requirements for, our working capital needs; -- Adjusted EBITDA does not reflect our interest expense, or the requirements necessary to service interest or principal payments on our debt; -- Adjusted EBITDA does not reflect our income tax expenses or the cash requirements to pay our taxes; -- Adjusted EBITDA and Adjusted net income do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; and -- although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.

Adjusted EBITDA

The following table presents a reconciliation of Net income, the most directly comparable financial measure under GAAP, to Adjusted EBITDA for the periods presented (amounts in millions):

Three Months Six Months Ended Ended August August August 2, August 4, 2, 4, 2020 2019 2020 2019Net income $ 131 $ 135 $ 203 $ 242 Interest expense, net 24 28 49 56 Provision for income taxes 43 48 67 83 Depreciation and amortization (1) 30 27 59 54 Restructuring and separation charges 4 ? 10 (2 )(2)Stock-based compensation 5 5 12 12 Acquisition and integration costs (3) ? ? ? 1 Other 1 1 1 1 Adjusted EBITDA $ 238 $ 244 $ 401 $ 447

(1) Depreciation and amortization includes amounts recorded within Cost of sales in the Consolidated Statements of Operations(2)Represents the costs related to separation activities and personnel changes, primarily severance and other employee-related costs, and costs related to deferring certain projects during the separation preparations. For the six months ended August 4, 2019, the Company recognized a favorable termination of the lease for its former corporate headquarters(3)Represents the costs incurred in the acquisition and integration of business acquisitions, including A.H. Harris Construction Supplies

Adjusted Net Income

The following table presents a reconciliation of Net income, the most directly comparable financial measure under U.S. GAAP, to Adjusted net income for the periods presented (amounts in millions):

Three Months Ended Six Months Ended August 2, August 4, August 2, August 4, 2020 2019 2020 2019Net income $ 131 $ 135 $ 203 $ 242 Plus: Restructuring and 4 ? 10 (2 )separation charges (1)Plus: Acquisition and ? ? ? 1 integration costs (2)Plus: Tax benefit for (1 ) ? (2 ) ? adjustments (3)Adjusted Net Income $ 134 $ 135 $ 211 $ 241 Diluted weighted average 161,282 170,057 161,220 170,386 common shares outstandingAdjusted net income per $ 0.83 $ 0.79 $ 1.31 $ 1.41 share ? diluted

(1)Represents the costs related to separation activities and personnel changes, primarily severance and other employee-related costs, and costs related to deferring certain projects during the separation preparations. For the six months ended August 4, 2019, the Company recognized a favorable termination of the lease for its former corporate headquarters(2)Represents the costs incurred in the acquisition and integration of business acquisitions, including A.H. Harris Construction Supplies(3)Adjustments to Net income have been tax effected at the Companys combined annual federal and state tax rates of 25.8% for the three and six months ended August 2, 2020 and 25.7% for the three and six months ended August 4, 2019

Investor and Media Contact:Charlotte McLaughlinHD Supply Investor Relations770-852-9100InvestorRelations@hdsupply.comCharlotte.McLaughlin@hdsupply.com