- $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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201106005138/en/
Kent Yee, 713-996-4700 Senior Vice President, CFO
www.dxpe.com
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