Market Overview

DXP Enterprises Reports Second Quarter 2018 Results

Share:
  • $311.2 million in sales, up 24.1 percent compared to Q2 2017, and a
    sequential increase of 8.8 percent
  • Net income of $11.5 million versus $4.1 million compared to Q2 2017
  • GAAP diluted EPS of $0.63, up 174 percent compared to Q2 2017
  • $28.0 million in earnings before interest, taxes, depreciation and
    amortization ("EBITDA")

DXP Enterprises, Inc. (NASDAQ:DXPE) today announced financial
results for the second quarter ended June 30, 2018. The following are
results for the three months and six months ended June 30, 2018,
compared to the three months and six months ended June 30, 2017. A
reconciliation of the non-GAAP financial measures can be found in the
back of this press release.

Second Quarter 2018 financial highlights:

  • Sales increased 24.1 percent to $311.2 million, compared to $250.7
    million for the second quarter of 2017, and 8.8 percent compared to
    the first quarter of 2018.
  • Earnings per diluted share for the second quarter was $0.63 based upon
    18.4 million diluted shares, compared to $0.23 per share in the second
    quarter of 2017, based on 18.2 million diluted shares. Excluding
    one-time items, a gain associated with selling a corporate facility
    and cost associated with repricing DXP's Term Loan B debt, earnings
    per diluted share for the second quarter was $0.61, up 165 percent
    compared to the second quarter of 2017.
  • Earnings before interest, taxes, depreciation and amortization
    (EBITDA) for the second quarter was $28.0 million compared to $16.9
    million for the second quarter of 2017, an increase of 65 percent.
    EBITDA as a percentage of sales was 9.0 percent and 6.8 percent,
    respectively, comparing the second quarter of 2018 versus 2017.
    Excluding a one-time gain associated with selling a corporate
    facility, EBITDA was $26.6 million or 8.6 percent of sales.

David R. Little, Chairman and CEO remarked, "We are pleased with our
sequential sales growth from the first quarter and continual improvement
in gross profit margins. This resulted in operating leverage that
produced earnings per share of $0.61, after adjusting for one-time
items. We continue to experience broad-based demand across our key end
markets and regions. DXP's second quarter 2018 sales were $311.2
million, or a 24.1 percent increase over the second quarter of 2017.
Organic sales for the quarter, increased 19.2 percent and acquisitions
added $12.4 million in sales. EBITDA grew 65.0 percent. During the
second quarter of 2018, sales were $193.6 million for Service Centers,
$74.2 million for Innovative Pumping Solutions and $43.4 million for
Supply Chain Services. Business segment operating income increased 47.1
percent year-over-year and increased 33.8 percent sequentially. Our
customers and suppliers look to DXP to provide a broad portfolio of
products, value-added services and leading supply chain solutions.
Overall, we are very pleased with the progress DXP is making. That said,
we are optimistic that we can show continued sales and profit
improvement during the second half of 2018."

Kent Yee, CFO, added, "This is DXP's sixth consecutive quarter of
sequential sales increases. Additionally, we have experienced three
quarters of sequential organic gross margin improvement. We announced
the repricing of our Term Loan B on June 26th lowering interest by 75
basis points from LIBOR plus 5.50 percent to LIBOR plus 4.75 percent.
Total debt outstanding as of June 30, 2018 was $250.4 million. DXP's
secured leverage ratio or net debt to EBITDA ratio was 3.2:1.0. We look
forward to the momentum continuing and a positive fiscal year 2018."

We will host a conference call regarding 2018 second quarter results on
the Company's website (www.dxpe.com)
Tuesday, August 7, 2018 at 4 pm 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 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 and free cash flow. 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. 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; ability to
obtain needed capital, dependence on existing management, leverage and
debt service, domestic or global economic conditions, 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.

 
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,

2018   2017 2018   2017
 
Sales $ 311,227 $ 250,698 $ 597,163 $ 489,225
Cost of sales   226,111     181,762     435,602     355,774  
Gross profit 85,116 68,936 161,561 133,451
Selling, general and administrative expenses   65,056     58,679     130,352     114,958  
Operating income 20,060 10,257 31,209 18,493
Other (income) expense, net (1,416 ) 57 (1,438 ) (171 )
Interest expense   6,137     3,992     11,178     7,645  
Income before income taxes 15,339 6,208 21,469 11,019
Provision for income taxes   3,776     2,239     5,412     4,056  
Net income 11,563 3,969 16,057 6,963
Less: Net income (loss) attributable to NCI*   1     (166 )   (56 )   (305 )
Net income attributable to DXP Enterprises, Inc. 11,562 4,135 16,113 7,268
Preferred stock dividend   22     22     45     45  
Net income attributable to common shareholders

$

11,540

 

$

4,113

 

$

16,068

 

$

7,223

 
 
Diluted earnings per share attributable to DXP Enterprises, Inc. $ 0.63   $ 0.23   $ 0.88   $ 0.40  
 
Weighted average common shares and common equivalent shares
outstanding
 

 

18,398

   

 

18,244

   

 

18,378

   

 

18,246

 
 
*NCI represents non-controlling interest
 

Business segment financial highlights:

  • Service Centers' revenue for the
    second quarter was $193.6 million, an increase of 17.5 percent
    year-over-year with an 11.3 percent operating income margin. Organic
    sales increased 10.0 percent year-over-year.
  • Innovative Pumping Solutions'
    revenue for the second quarter was $74.3 million, an increase of 67.0
    percent year-over-year with a 12.1 percent operating income margin.
  • Supply Chain Services' revenue for
    the second quarter was $43.4 million, an increase of 4.6 percent
    year-over-year with a 9.8 percent operating income margin.
 

SEGMENT DATA

($ thousands, unaudited)

               
Three Months Ended

June 30,

Six Months Ended

June 30,

Sales

2018

2017

2018

2017

Service Centers $ 193,576 $ 164,749 $ 368,937 $ 313,461
Innovative Pumping Solutions 74,257 44,470 141,899 93,528
Supply Chain Services   43,394   41,479   86,327   82,236
Total DXP Sales $ 311,227 $ 250,698 $ 597,163 $ 489,225
 
 
Three Months Ended

June 30,

Six Months Ended

June 30,

Operating Income

2018

2017

2018

2017

Service Centers $ 21,933 $ 18,418 $ 37,762 $ 31,758
Innovative Pumping Solutions 8,956 1,754 15,338 5,264
Supply Chain Services   4,255   3,718   8,309   7,776
Total operating income for segments $ 35,144 $ 23,890 $ 61,409 $ 44,798

 

Reconciliation of Operating Income for Reportable Segments

($ thousands, unaudited)

       
Three Months Ended

June 30,

Six Months Ended

June 30,

2018     2017 2018     2017
Operating income for reportable segments $ 35,144 $ 23,890 $ 61,409 $ 44,798
Adjustment for:
Amortization of intangibles 4,119 4,291 8,477 8,607
Corporate expenses   10,965     9,342   21,723     17,698  
Total operating income 20,060 10,257 31,209 18,493
Interest expense 6,137 3,992 11,178 7,645
Other (income) expense, net   (1,416 )   57   (1,438 )   (171 )
Income before income taxes $ 15,339   $ 6,208 $ 21,469   $ 11,019  
 

Unaudited Reconciliation of Non-GAAP Financial Information

 
The following table is a reconciliation of Adjusted EBITDA**, a
non-GAAP financial measure, to income before income taxes, calculated
and reported in accordance with U.S. GAAP ($ thousands, unaudited).
       
Three Months Ended

June 30,

Six Months Ended

June 30,

2018     2017 2018     2017
 
Income before income taxes $ 15,339 $ 6,208 $ 21,469 $ 11,019
Plus: interest expense 6,137 3,992 11,178 7,645
Plus: depreciation and amortization 6,491 6,747 13,205 13,762
       
EBITDA $ 27,967 $ 16,947 $ 45,852   $ 32,426
 
Plus: NCI income (loss) before tax 1 269 (56 ) 493
Plus: Stock compensation expense 557 477 1,003 1,010
       
Adjusted EBITDA $ 28,525 $ 17,693 $ 46,799   $ 33,929

           

DXP ENTERPRISES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

($ thousands, except per share amounts)

   
As of

June 30, 2018

As of

December 31, 2017

ASSETS
Current assets:
Cash $ 2,489 $ 22,047
Restricted Cash 399 3,532
Trade accounts receivable, net of allowances for doubtful accounts 185,261 167,272
Inventories 110,767 91,413
Costs and estimated profits in excess of billings 37,943 26,915
Prepaid expenses and other current assets 4,750 5,296
Federal income taxes receivable   986   1,440
Total current assets 342,595 317,915
Property and equipment, net 53,035 53,337
Goodwill 194,033 187,591
Other intangible assets, net of accumulated amortization 75,682 78,525
Other long-term assets   1,587   1,715
Total assets $ 666,932 $ 639,083
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt $ 3,394 $ 3,381
Trade accounts payable 95,013 80,303
Accrued wages and benefits 18,106 18,483
Customer advances 7,882 2,189
Billings in excess of costs and estimated profits 3,075 4,249
Other current liabilities   5,645   16,220
Total current liabilities 133,115 124,825
Long-term debt, less current maturities and unamortized debt
issuance costs
237,875 238,643
Deferred income taxes 7,966 7,069
Other long-term liabilities   2,611   -
Total long-term liabilities   248,452   245,712
Total Liabilities   381,567   370,537
Equity:
Total DXP Enterprises, Inc. equity 284,854 267,979
Non-controlling interest   511   567
Total Equity   285,365   268,546
Total liabilities and equity $ 666,932 $ 639,083
 

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 ($ thousands, unaudited).

       
Three Months Ended

June 30,

Six Months Ended

June 30,

2018     2017 2018     2017
 
Net cash (used in) provided by operating activities $ (6,175 ) $ 10,044 $ (6,983 ) $ 7,854
Less: purchase of equipment 4,725 517 5,516 1,118
       
Free Cash Flow $ (10,900 ) $ 9,527 $ (12,499 ) $ 6,736
 
Plus: Outstanding Checks 21,714 - 21,714 -
       
Adjusted Free Cash Flow $ 10,814   $ 9,527 $ 9,215   $ 6,736

 

***Outstanding Checks – Accounting rules require companies to net
outstanding check balances against cash that is available. Prior to
DXP's Q3 2017 refinancing, DXP did not have cash on its balance sheet to
net the outstanding checks, thus they were included in the accounts
payable balance.

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