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DXP Enterprises Announces 2016 Third Quarter Results

DXPE | November 14, 2016

DXP Enterprises Announces 2016 Third Quarter Results

DXP Enterprises, Inc. (NASDAQ: DXPE) today announced financial results for the third quarter ended September 30, 2016. The following are results for the three and nine months ended September 30, 2016 compared to the three and nine months ended September 30, 2015 and three months ended June 30, 2016, where appropriate. A reconciliation of the non-GAAP financial measures is in the back of this press release.

DXP Enterprises 2016 third quarter financial highlights:

Sales were $230.0 million for the third quarter of 2016 versus $256.2 million for the second quarter of 2016, a decrease of 10.2 percent. Compared to the third quarter of 2015 sales of $303.1 million, sales were down 24.1 percent.
Gross profit was $63.8 million, or 27.7 percent of sales for the third quarter of 2016 versus $71.6 million for the second quarter of 2016, or 28.0 percent of sales. Gross profit was $85.7 million or 28.3 percent of sales for the third quarter of 2015.
Selling, general and administrative (SG&A) expenses were $58.9 million, or 25.6 percent of sales for the third quarter of 2016, compared to $75.1 million or 24.8 percent of sales for the third quarter of 2015. In the second quarter of 2016, SG&A was 24.5 percent of sales or $62.8 million.
Earnings per diluted share for the third quarter was $0.02 based upon 15.4 million diluted shares, compared to a loss of $3.64 per share in the third quarter of 2015, based on 14.4 million diluted shares. In the second quarter of 2016, earnings per diluted share was $0.34 per share on 15.3 million shares.
Earnings before interest, taxes, depreciation and amortization (EBITDA) for the third quarter was $12.8 million compared to $11.3 million for the third quarter of 2015, an increase of 6.7 percent. In the second quarter of 2016, EBITDA was $16.3 million.
Free cash flow (cash flow from operating activities less capital expenditures) for the third quarter was $23.4 million or 183 percent of EBITDA.

David R. Little, Chairman and CEO, remarked, “DXP continues to manage to the current realities and we are proud of the gains our DXPeople have made year-to-date. We are managing costs and producing free cash flow. We also are preparing for the future and the next up cycle, which we believe is coming. We continue to appreciate the hard work and perseverance from all our DXPeople. Total DXP revenues of $230.0 million for the third quarter declined 10.2 percent sequentially. As previously outlined in our earnings pre-release on October 19^th, DXP’s third quarter performance reflects low sales across all of DXP’s business segments during the month of July. August and September sales were more in line with average year-to-date monthly performance but did not make-up for the July aberration. During the third quarter, sales were $152.0 million for Service Centers, $39.8 million for Innovative Pumping Solutions and $38.2 million for Supply Chain Services. We are pleased with our cost containment measures within the segments and at corporate. Free cash flow combined with proceeds from the sale of Vertex and equity issuance, has allowed DXP to pay down debt by over $77 million, subsequent to quarter end. We remain confident in our future and the opportunities ahead for DXP. Again, DXP is poised for earnings leverage and sales growth once the market turns.”

Mac McConnell, CFO, added, “DXP generated $23.4 million in free cash flow during the third quarter and $31.6 million year-to-date. During the quarter, DXP paid down debt by $28.4 million. Total debt outstanding as of September 30, 2016 was $319.3 million. As of November 11, 2016, total debt outstanding was $236.3 million which includes proceeds from the sale of Vertex and the issuance of 2,484,000 shares in conjunction with DXP’s common stock offering announced on October 25, 2016. DXP has prepaid the $30 million mandatory payment due by December 31, 2016 and the $25 million payment due by March 31, 2017. Additionally, DXP has prepaid the $12.5 million amortization payment due on December 31, 2016 and $12.0 million of the $15.625 million amortization payment due on March 31, 2017.”

We will host a conference call regarding 2016 third quarter financial results on the Company’s website (www.dxpe.com) Monday, November 14, 2016 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 and at www.viavid.net.

DXP Enterprises 2016 third quarter business segment results:

Service Centers’ revenue for the third quarter was $152.0 million, a decline of 6.1 percent sequentially with an 8.8 percent operating income margin.
Innovative Pumping Solutions’ revenue for the third quarter was $39.8 million, a decline of 26.7 percent sequentially with a 4.1 percent operating income margin.
Supply Chain Services’ revenue for the third quarter was $38.2 million, a decline of 4.6 percent sequentially with a 10.3 percent operating margin.

Non-GAAP Financial Measures

DXP supplements reporting of net income (loss) 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 referred to in this press release is included below under "--Reconciliation of Non-GAAP Measures."

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 CONSOLIDATED STATEMENTS OF OPERATIONS ($ thousands, except per share amounts) (unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015

Sales	$	230,025		$	303,080		$	739,801		$	968,362
Cost of sales		166,205			217,374			535,560			693,308
Gross profit		63,820			85,706			204,241			275,054
Selling, general and administrative expenses		58,887			75,082			192,461			232,336
B27 Working capital		-			7,348			-			7,348
Impairment expense		-			58,888			-			58,888
Operating income (loss)		4,933			(55,612	)		11,780			(23,518	)
Other expense (income), net		(251	)		327			(397	)		(67	)
Interest expense		4,338			2,630			11,698			7,905
Income (loss) before income taxes		846			(58,569	)		479			(31,356	)
Provision (benefit) for income taxes		664			(5,885	)		459			4,510
Net income (loss)		182			(52,684	)		20			(35,866	)
Less: Net income (loss) attributable to non-controlling interest		(81	)		(249	)		(301	)		(249	)
Net income (loss) attributable to DXP Enterprises, Inc.		263			(52,435	)		321			(35,617	)
Preferred stock dividend		23			23			68			68
Net income (loss) attributable to common shareholders	$	240		$	(52,458	)	$	253		$	(35,685	)
Diluted earnings (loss) per share attributable to DXP Enterprises, Inc.	$	0.02		$	(3.64	)	$	0.02		$	(2.48	)
Weighted average common shares and common equivalent shares outstanding		15,440			14,422			15,369			14,394


SEGMENT DATA ($ thousands, unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Sales by Segment:
Service Centers	$	152,018	$	199,306	$	481,352	$	639,212
Innovative Pumping Solutions		39,830		61,458		141,614		202,627
Supply Chain Services		38,177		42,316		116,835		126,523
Total Sales	$	230,025	$	303,080	$	739,801	$	968,362

Operating Income by Segment:
Service Centers	$	13,345	$	17,957	$	35,479	$	61,943
Innovative Pumping Solutions		1,630		6,139		7,423		20,677
Supply Chain Services		3,929		3,821		11,611		10,835
Total Operating Income for segments	$	18,904	$	27,917	$	54,513	$	93,455


Reconciliation of Operating Income for Reportable Segments ($ thousands, unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Operating income for reportable segments	$	18,904		$	27,917		$	54,513		$	93,455
Adjustment for:
Amortization of intangibles		4,519			5,240			13,557			15,907
Corporate expense		9,452			12,053			29,176			34,830
Total operating income (loss)		4,933			10,624			11,780			42,718
Interest expense		4,338			2,630			11,698			7,905
B27 Working Capital		-			7,348			-			7,348
Impairment		-			58,888			-			58,888
Other expense (income), net		(251	)		327			(397	)		(67	)
Income (loss) before income taxes	$	846		$	(58,569	)	$	479		$	(31,356	)


Unaudited Reconciliation of Non-GAAP Financial Information

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

	Three Months Ended September 30,					Three Months Ended June 30,		Nine Months Ended September 30,
	2016		2015			2016		2016		2015

Income (loss) before income taxes	$	846	$	(58,569	)	$	4,889	$	479	$	(31,356	)
Plus: interest expense		4,338		2,630			3,951		11,698		7,905
Plus: depreciation and amortization		7,592		8,329			7,489		22,627		24,915
Plus: Impairment		-		58,888			-		-		58,888

EBITDA	$	12,776	$	11,278		$	16,329	$	34,804	$	60,352

Plus: NCI loss before tax		131		380			136		486		380
Plus: Stock compensation expense		691		747			405		1,944		2,304
Plus: B27 Working Capital		-		7,348					-		7,348


Adjusted EBITDA	$	13,598	$	19,753		$	16,870	$	37,234	$	70,384



**EBITDA – earnings before impairments, interest, taxes, depreciation and amortization