Market Overview

DXP Enterprises Reports Third Quarter 2020 Results

Share:
  • $97.4 million in cash and cash equivalents
  • $220.2 million in sales
  • GAAP diluted EPS of $(1.95), excluding non-cash, one-time items, adjusted EPS of $0.16
  • Cash flow from operating activities of $30.5 million
  • Free cash flow for the quarter of $29.1 million
  • Recorded $48.4 million in goodwill impairments and other one-time, non-cash charges

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 September 30,

 

Nine Months Ended 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 administrative expenses

 

 

53,746

 

 

 

70,987

 

 

 

189,759

 

 

 

209,511

 

Impairment and other charges

 

 

48,401

 

 

 

 

 

 

48,401

 

 

 

 

Operating income (loss)

 

 

(40,846

)

 

 

21,717

 

 

 

(23,178

)

 

 

59,380

 

Other expense (income), net

 

 

320

 

 

 

(25

)

 

 

(381

)

 

 

127

 

Interest expense

 

 

3,752

 

 

 

4,986

 

 

 

12,059

 

 

 

14,911

 

Income (loss) before income taxes

 

 

(44,918

)

 

 

16,756

 

 

 

(34,856

)

 

 

44,342

 

Provision for income taxes (benefit)

 

 

(10,143

)

 

 

3,606

 

 

 

(7,809

)

 

 

10,655

 

Net income (loss)

 

 

(34,775

)

 

 

13,150

 

 

 

(27,047

)

 

 

33,687

 

Net (loss) income attributable to NCI*

 

 

(109

)

 

 

41

 

 

 

(233

)

 

 

(172

)

Net income (loss) attributable to DXP Enterprises, Inc.

 

 

(34,666

)

 

 

13,109

 

 

 

(26,814

)

 

 

33,859

 

Preferred stock dividend

 

 

23

 

 

 

23

 

 

 

68

 

 

 

68

 

Net income (loss) attributable to common shareholders

 

$

(34,689

)

 

$

13,086

 

 

$

(26,882

)

 

$

33,791

 

Diluted earnings (loss) per share attributable to DXP Enterprises, Inc.

 

$

(1.95

)

 

$

0.71

 

 

$

(1.52

)

 

$

1.84

 

Weighted average common shares and common equivalent shares outstanding

 

 

17,790

 

 

 

18,442

 

 

 

17,743

 

 

 

18,428

 

 

 

 

 

 

 

 

 

 

*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 September 30,

 

Nine Months Ended September 30,

Sales

2020

 

 

2019

 

2020

 

2019

Service Centers

$

164,900

 

 

$

193,727

 

 

$

501,333

 

 

$

579,884

 

Innovative Pumping Solutions

21,876

 

 

82,169

 

 

152,376

 

 

237,920

 

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 September 30,

 

Nine Months Ended September 30,

Operating Income

2020

 

 

2019

 

2020

 

2019

Service Centers

$

22,151

 

 

$

25,071

 

 

$

52,742

 

 

$

67,281

 

Innovative Pumping Solutions

(2,913

)

 

10,097

 

 

16,080

 

 

28,924

 

Supply Chain Services

2,900

 

 

3,110

 

 

10,008

 

 

10,980

 

Total segments operating income

$

22,138

 

 

$

38,278

 

 

$

78,830

 

 

$

107,185

 

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

 

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

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

 

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.

 

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