Market Overview

DXP Enterprises Reports First Quarter 2019 Results

Share:
  • $311.2 million in sales, up 8.8 percent, compared to $285.9 million
    in sales in Q1 2018, led by Supply Chain Services
  • Net income of $7.3 million versus $4.5 million compared to Q1 2018
  • GAAP diluted EPS of $0.40, compared to $0.24 in Q1 2018
  • $21.1 million in earnings before interest, taxes, depreciation and
    amortization ("EBITDA") versus $17.9 million in Q1 2018

DXP Enterprises, Inc. (NASDAQ:DXPE) today announced financial
results for the first quarter ended March 31, 2019. The following are
results for the three months ended March 31, 2019, compared to the three
months ended March 31, 2018. A reconciliation of the non-GAAP financial
measures can be found in the back of this press release.

First Quarter 2019 financial highlights:

  • Sales increased 8.8 percent to $311.2 million, compared to $285.9
    million for the first quarter of 2018.
  • Earnings per diluted share for the first quarter was $0.40 based upon
    18.4 million diluted shares, compared to $0.24 per share in the first
    quarter of 2018.
  • Earnings before interest, taxes, depreciation and amortization
    (EBITDA) for the first quarter was $21.1 million compared to $17.9
    million for the first quarter of 2018, an increase of 17.7 percent.
    EBITDA as a percentage of sales was 6.8 percent and 6.3 percent,
    respectively, comparing the first quarter of 2019 versus 2018.

David R. Little, Chairman and CEO commented, "We are off to a good start
again in 2019. Our first quarter performance shows the team maintained
momentum and delivered on expected results. The oil and gas and
industrial economy continues to remain firm with all key indicators
remaining positive. During the first quarter, we achieved 8.8 percent
organic sales growth and believe we continue to expand our leading
market positions across our business segments. Our strong earnings per
share growth speaks to our team's execution and focus on continuous
improvement. DXP's first quarter 2019 sales were $311.2 million while
EBITDA increased 17.7 percent year-over-year. In terms of our business
segments for the first quarter of 2019, sales were $186.2 million for
Service Centers, $74.7 million for Innovative Pumping Solutions and
$50.3 million for Supply Chain Services. Business segment operating
income increased 13.7 percent year-over-year. We delivered on our
financial results as our markets and customers continue to perform.
Entering the second quarter, we look forward to continued strength in
our end markets while we drive operational excellence."

Kent Yee, CFO, remarked, "The first quarter of 2019 financial results
were great to see. Our year-over-year financial results continue to
reflect the growth we experienced in fiscal 2018. Solid sales growth,
accompanied by in-line diluted earnings per share. Our current run rate
sales volumes should allow us to leverage operating expenses, deliver on
profitability and will lead to strong cash flow generation. We remain
confident in the momentum continuing in our business segments and a
strong 2019. Total debt outstanding as of March 31, 2019 was $247.9
million. DXP's secured leverage ratio or net debt to EBITDA ratio was
2.2:1.0."

We will host a conference call regarding 2019 first quarter results on
the Company's website (www.dxpe.com)
Tuesday, May 7, 2019 at 10 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 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
March 31,
2019   2018
 
Sales $ 311,225 $ 285,936
Cost of sales 227,025   209,491  
Gross profit 84,200 76,445
Selling, general and administrative expenses 69,384   65,296  
Operating income 14,816 11,149
Other income, net (33 ) (22 )
Interest expense 5,040   5,041  
Income before income taxes 9,809 6,130
Provision for income taxes 2,622   1,636  
Net income 7,187 4,494
Net loss attributable to NCI* (104 ) (57 )
Net income attributable to DXP Enterprises, Inc. 7,291 4,551
Preferred stock dividend 23   23  
Net income attributable to common shareholders $ 7,268   $ 4,528  
 
Diluted earnings per share attributable to DXP Enterprises, Inc. $ 0.40   $ 0.24  
 
Weighted average common shares and common equivalent shares
outstanding
18,406   18,741  
 
*NCI represents non-controlling interest
 

Business segment financial highlights:

  • Service Centers' revenue for the
    first quarter was $186.2 million, an increase of 6.2 percent
    year-over-year with a 10.2 percent operating income margin.
  • Innovative Pumping Solutions'
    revenue for the first quarter was $74.7 million, an increase of 10.5
    percent year-over-year with a 9.1 percent operating income margin.
  • Supply Chain Services' revenue for
    the first quarter was $50.3 million, an increase of 17.2 percent
    year-over-year with an 8.1 percent operating income margin.
 

SEGMENT DATA

($ thousands, unaudited)

 
    Sales   Operating Income
Three Months Ended
March 31,
Three Months Ended
March 31,
Business Segment 2019   2018 2019   2018
Service Centers $ 186,179 $ 175,362 $ 18,980 $ 15,830
Innovative Pumping Solutions 74,723 67,642 6,799 6,382
Supply Chain Services 50,323   42,932   4,086   4,054
Total DXP Sales $ 311,225   $ 285,936   $ 29,865   $ 26,266
 
 

Reconciliation of Operating Income for Reportable Segments

($ thousands, unaudited)

 
    Three Months Ended
March 31,
2019   2018
Operating income for reportable segments $ 29,865 $ 26,266
Adjustment for:
Amortization of intangibles 3,814 4,358
Corporate expenses 11,235   10,759  
Total operating income 14,816 11,149
Interest expense 5,040 5,041
Other income, net (33 ) (22 )
Income before income taxes 9,809   6,130  
 

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 net income, calculated and reported in
accordance with U.S. GAAP.

     
Three Months Ended
March 31,

Three Months
Ended
December 31,

2019   2018 2018
Net income 7,187 4,494 11,102
Plus: income tax expense 2,622 1,636 4,223
Plus: interest expense 5,040 5,041 4,978
Plus: depreciation and amortization 6,206 6,714 6,454
     
EBITDA 21,055   17,885   26,757
 
Plus: NCI loss before tax 137 57 37
Plus: stock compensation expense 505 736 526
     
Adjusted EBITDA 21,697   18,678   27,320
 
 

DXP ENTERPRISES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

($ thousands, except per share amounts)

         

As of March 31,
2019

As of December 31,
2018

ASSETS
Current assets:
Cash $ 30,606 $ 40,304
Restricted cash 122 215
Accounts receivable, net of allowances for doubtful accounts 197,267 191,829
Inventories 121,754 114,830
Costs and estimated profits in excess of billings 38,150 32,514
Prepaid expenses and other current assets 5,597 4,938
Federal income taxes receivable   960
Total current assets $ 393,496 $ 385,590
Property and equipment, net 51,404 51,330
Goodwill 194,052 194,052
Other intangible assets, net of accumulated amortization 63,609 67,207
Operating lease right-of-use assets 70,851
Other long-term assets 1,795   1,783
Total assets $ 775,207   $ 699,962
 
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt $ 3,414 $ 3,407
Trade accounts payable 92,460 87,407
Accrued wages and benefits 16,882 21,275
Customer advances 3,867 3,223
Billings in excess of costs and estimated profits 8,207 10,696
Federal income taxes payable 67
Current-portion operating lease liability 17,660
Other current liabilities 16,075   17,269
Total current liabilities $ 158,632 $ 143,277
Long-term debt, less unamortized debt issuance costs 236,591 236,979
Long-term operating lease liability 52,993
Other long-term liabilities 988 2,819
Deferred income taxes 9,422   8,633
Total long-term liabilities $ 299,994   $ 248,431
Total Liabilities $ 458,626   $ 391,708
Equity:
Total DXP Enterprises, Inc. equity 315,279 306,848
Non-controlling interest 1,302   1,406
Total Equity $ 316,581   $ 308,254
Total liabilities and equity $ 775,207   $ 699,962
 

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
March 31,
2019   2018
 
Net cash used in operating activities (5,310 ) (808 )
Less: purchase of equipment 2,312 791
Plus: proceeds from sales of assets 29
   
Free cash flow (7,593 ) (1,599 )
 

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