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DXP Enterprises Reports Third Quarter 2019 Results

DXPE | November 6, 2019

HOUSTON

$327.2 million in sales, up 6.2 percent, compared to $308.0 million in sales in Q3 2018
Net income of $13.1 million versus $8.4 million compared to Q3 2018
GAAP diluted EPS of $0.71, compared to $0.46 in Q3 2018
$28.2 million in earnings before interest, taxes, depreciation and amortization (“EBITDA”)

DXP Enterprises, Inc. (NASDAQ: DXPE) today announced financial results for the third quarter ended September 30, 2019. The following are results for the three months and nine months ended September 30, 2019, compared to the three months and nine months ended September 30, 2018. A reconciliation of the non-GAAP financial measures can be found in the back of this press release.

Third Quarter 2019 financial highlights:

Sales increased 6.2 percent to $327.2 million, compared to $308.0 million for the third quarter of 2018.
Earnings per diluted share for the third quarter was $0.71 based upon 18.4 million diluted shares, compared to $0.46 per share in the third quarter of 2018, based on 18.4 million diluted shares.
Earnings before interest, taxes, depreciation and amortization (EBITDA) for the third quarter was $28.2 million compared to $23.2 million for the third quarter of 2018, an increase of 21.4 percent.

David R. Little, Chairman and CEO commented, “DXP reported excellent sales and net income for the third quarter. We are pleased with our results, which reflect continued execution of our strategy and a focus on being customer driven experts in MROP solutions. Underlying demand in our end markets has wavered but we continue to take market share and focus on execution. We achieved 6.2 percent sales growth, maintained EBITDA margins and drove outstanding diluted earnings per share growth. During the third quarter of 2019, sales were $193.7 million for Service Centers, $82.2 million for Innovative Pumping Solutions and $51.3 million for Supply Chain Services. Business segment operating income increased 15.1 percent year-over-year. DXP’s third quarter 2019 total sales were $327.2 million and EBITDA grew 21.4 percent year-over-year. Overall, we maintained margin performance, continued to improve cash flow and executed in a changing end market backdrop. We will remain focused on growing the top-line and bottom-line as we move into fiscal 2020.”

Kent Yee, CFO, commented, “We are pleased with 6.2 percent sales growth and 8.6 percent EBITDA margins. This translated into $0.71 diluted earnings per share or 54.3 percent earnings growth year-over-year. Total debt outstanding as of September 30, 2019 was $245.0 million. DXP’s secured leverage ratio or net debt to EBITDA was 2.0:1.0. Our strong execution with our focus on sales growth and margin improvement delivered strong earnings, generated cash flow and continues to position us drive shareholder value.”

We will host a conference call regarding 2019 third quarter results on the Company’s website (www.dxpe.com) Thursday, November 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 September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Sales	$	327,178		$	308,028		$	971,721		$	905,191
Cost of sales	234,474			223,958			702,830			659,560
Gross profit	92,704			84,070			268,891			245,631
Selling, general and administrative expenses	70,987			67,257			209,511			197,609
Operating income	21,717			16,813			59,380			48,022
Other (income) expense, net	(25		)	120			127			(1,318		)
Interest expense	4,986			4,781			14,911			15,959
Income before income taxes	16,756			11,912			44,342			33,381
Provision for income taxes	3,606			3,550			10,655			8,962
Net income	13,150			8,362			33,687			24,419
Net income (loss) attributable to NCI*	41			(35		)	(172		)	(91		)
Net income attributable to DXP Enterprises, Inc.	$	13,109		$	8,397		$	33,859		$	24,510
Preferred stock dividend	23			23			68			68
Net income attributable to common shareholders	$	13,086		$	8,374		$	33,791		$	24,442
Diluted earnings per share attributable to DXP Enterprises, Inc.	$	0.71		$	0.46		$	1.84		$	1.33
Weighted average common shares and common equivalent shares outstanding	18,442			18,404			18,428			18,387

*NCI represents non-controlling interest

Business segment financial highlights:

Service Centers’ revenue for the third quarter was $193.7 million, an increase of 3.2 percent year-over-year with a 12.9 percent operating income margin.
Innovative Pumping Solutions’ revenue for the third quarter was $82.2 million, an increase of 7.2 percent year-over-year with a 12.3 percent operating income margin.
Supply Chain Services’ revenue for the third quarter was $51.3 million, an increase of 17.6 percent year-over-year with a 6.1 percent operating income margin.

SEGMENT DATA ($ thousands, unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
Sales	2019		2018		2019		2018
Service Centers	$	193,727	$	187,763	$	579,884	$	556,700
Innovative Pumping Solutions	82,169		76,662		237,920		218,561
Supply Chain Services	51,282		43,603		153,917		129,930
Total DXP Sales	$	327,178	$	308,028	$	971,721	$	905,191

	Three Months Ended September 30,				Nine Months Ended September 30,
Operating Income	2019		2018		2019		2018
Service Centers	$	25,071	$	20,590	$	67,281	$	58,353
Innovative Pumping Solutions	10,097		8,773		28,924		24,109
Supply Chain Services	3,110		3,886		10,980		12,196
Total segments operating income	$	38,278	$	33,249	$	107,185	$	94,658

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

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019			2018		2019		2018
Operating income for reportable segments	$	38,278		$	33,249	$	107,185	$	94,658
Adjustment for:
Amortization of intangibles	3,806			4,098		11,424		12,575
Corporate expenses	12,755			12,338		36,381		34,061
Total operating income	21,717			16,813		59,380		48,022
Interest expense	4,986			4,781		14,911		15,959
Other expense (income), net	(25		)	120		127		(1,318		)
Income before income taxes	$	16,756		$	11,912	$	44,342	$	33,381

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

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019			2018		2019		2018
Income before income taxes	$	16,756		$	11,912	$	44,342	$	33,381
Plus: interest expense	4,986			4,781		14,911		15,959
Plus: depreciation and amortization	6,422			6,506		18,693		19,710

EBITDA	$	28,164		$	23,199	$	77,946	$	69,050

Plus: NCI (income) loss before tax	(55		)	64		228		120
Plus: Stock compensation expense	473			526		1,502		2,023

Adjusted EBITDA	$	28,582		$	23,789	$	79,676	$	71,193

DXP ENTERPRISES, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS ($ thousands, except per share amounts)
	September 30, 2019		December 31, 2018
ASSETS
*Current assets:*
Cash	$	28,436	$	40,304
Restricted Cash	124		215
Accounts receivable, net of allowances for doubtful accounts	210,098		191,829
Inventories	131,916		114,830
Costs and estimated profits in excess of billings	33,898		32,514
Prepaid expenses and other current assets	6,328		4,938
Federal income taxes receivable	1,518		960
*Total current assets*	412,318		385,590
Property and equipment, net	58,516		51,330
Goodwill	194,052		194,052
Other intangible assets, net of accumulated amortization	56,072		67,207
Operating lease ROU asset	67,296		—
Other long-term assets	3,300		1,783
Total assets	$	791,554	$	699,962

LIABILITIES AND EQUITY
*Current liabilities:*
Current maturities of long-term debt	$	2,500	$	3,407
Trade accounts payable	83,174		87,407
Accrued wages and benefits	20,242		21,275
Customer advances	4,606		3,223
Billings in excess of costs and estimated profits	7,201		10,696
Short-term operating lease liability	17,711		—
Other current liabilities	16,544		17,269
*Total current liabilities*	151,978		143,277
Long-term debt, less unamortized debt issuance costs	235,576		236,979
Long-term operating lease liability	49,602		—
Other long-term liabilities	951		2,819
Deferred income taxes	11,056		8,633
Total long-term liabilities	297,185		248,431
Total Liabilities	449,163		391,708
*Equity:*
*Total DXP Enterprises, Inc. equity*	341,157		306,848
Non-controlling interest	1,234		1,406
*Total Equity*	342,391		308,254
Total liabilities and equity	$	791,554	$	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 September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018

Net cash provided by operating activities	$	10,943		$	16,825		$	7,483		$	9,842
Less: capital expenditures	(5,663		)	(2,189		)	(14,247		)	(7,705		)

Free cash flow	$	5,280		$	14,636		$	(6,764	)	$	2,137