DXP Enterprises, Inc. Reports Second Quarter 2023 Results

• $15.5 million in cash

• $428.0 million in sales, a 16.4 percent year-over-year increase

• Net income attributable to common shareholders of $19.0 million versus $14.4 million compared to Q2 2022

• GAAP diluted EPS of $1.06

• $45.3 million in earnings before interest, taxes, depreciation & amortization and other non-cash charges ("Adjusted EBITDA")

• Completed the acquisitions of Riordan Materials Corporation and Florida Valve & Equipment Corp. and Environmental MD

HOUSTON, August 08, 2023--(BUSINESS WIRE)--DXP Enterprises, Inc. (NASDAQ: DXPE) today announced financial results for the second quarter ended June 30, 2023. The following are results for the three months ended June 30, 2023, compared to the three months ended June 30, 2022. A reconciliation of the non-GAAP financial measures can be found in the back of this press release.

Second Quarter 2023 financial highlights:

• Sales increased 16.4 percent to $428.0 million, compared to $367.8 million for the second quarter of 2022 and 0.9 percent compared to the first quarter of 2023.

• Earnings per diluted share for the second quarter were $1.06 based upon 18.1 million diluted shares, compared to earnings of $0.74 per share in the second quarter of June 30, 2022, based on 19.6 million diluted shares.

• Net income for the second quarter was $19.1 million, compared to $14.4 million for the corresponding prior-year period.

• Adjusted EBITDA for the second quarter of 2023 was $45.3 million compared to $32.6 million for the second quarter of 2022. Adjusted EBITDA as a percentage of sales was 10.6 percent and 8.9 percent, respectively.

David R. Little, Chairman and CEO commented, "Second quarter results reflect the resilience and durability of DXP’s business. We are pleased with our sequential sales growth and strength in our gross profit margins. This resulted in operating leverage that produced earnings per share of $1.06. We continue to experience broad-based demand across our key regions, products, and end markets. DXP’s second quarter 2023 sales were $428.0 million, or a 16.4 percent increase over the second quarter of 2022. Organic sales for the quarter, increased 20.2 percent and acquisitions added $7.3 million in sales. Adjusted EBITDA grew $12.7 million, or 38.9 percent over the second quarter of 2022. During the second quarter of 2023, sales were $298.4 million for Service Center, $66.2 million for Supply Chain Services, and $63.4 million for Innovative Pumping Solutions. Overall, we are very pleased with our performance and the progress DXP continues to make as a growth company. We are optimistic that we can show continued sales and profit improvement during the second half of 2023."

Kent Yee, CFO remarked, "This is DXP’s eleventh consecutive quarter of sequential sales increases. We closed two acquisitions and look forward to closing more during the second half of 2023. Our second quarter sales and adjusted EBITDA continues to set new high watermarks. Specifically, this quarter reflects continued execution of our strategic goals and the confidence we have in our balanced mix of business, tremendous teams, and a strong balance sheet to support our key initiatives. Total debt outstanding as of June 30, 2023, was $425.9 million. DXP’s secured leverage ratio or net debt to EBITDA ratio was 2.53:1.0 with a covenant EBITDA of $161.9 million for the last twelve months ending June 30, 2023."

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, Adjusted 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 facilities. 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. Free Cash Flow reconciles to the most directly comparable GAAP financial measure of cash flows from operations as provided below. We believe Free Cash Flow is an important liquidity metric because it measures, during a given period, the amount of cash generated that is available to fund acquisitions, make investments, repay debt obligations, repurchase company shares, and for certain other activities.

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 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 low commodity prices of oil and gas; the Company's expectations regarding the filing of the Form 10-Q; the description of the anticipated changes in the Company's consolidated balance sheet and the results of operations and the Company's assessment of the impact of such anticipated changes; 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; inability of the Company or its independent auditors to complete the work necessary in order to file the Form 10-Q, in the expected time frame; unanticipated changes to the Company's operating results in the Form 10-Q as filed or in relation to prior periods, including as compared to the anticipated changes stated here; unanticipated impact of such changes and its materiality; ability to obtain needed capital, dependence on existing management, leverage and debt service, domestic or global economic conditions, 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 for share and per share amounts)
		Three Months Ended June 30,							Six Months Ended June 30,
		2023				2022			2023				2022
Sales		$	428,040			$	367,812		$	852,307			$	687,223
Cost of sales			296,188				263,550			595,414				488,076
Gross profit			131,852				104,262			256,893				199,147
Selling, general and administrative expenses			94,372				78,342			184,014				151,667
Income from operations			37,480				25,920			72,879				47,480
Other (income) expense, net			(242	)			839			(712	)			1,377
Interest expense			11,863				5,615			23,384				10,777
Income before income taxes			25,859				19,466			50,207				35,326
Provision for income taxes			6,805				4,973			13,573				8,305
Net income			19,054				14,493			36,634				27,021
Net income (loss) attributable to NCI*			—				60			—				(53	)
Net income attributable to DXP Enterprises, Inc.			19,054				14,433			36,634				27,074
Preferred stock dividend			22				22			45				45
Net income attributable to common shareholders		$	19,032			$	14,411		$	36,589			$	27,029
Diluted earnings per share attributable to DXP Enterprises, Inc.		$	1.06			$	0.74		$	2.01			$	1.39
Weighted average common shares and common equivalent shares outstanding			18,051				19,606			18,242				19,491
*NCI represents non-controlling interest

Business segment financial highlights:

• Service Centers’ revenue for the second quarter was $298.4 million, a 1.1 percent sequential increase and an increase of 18.9 percent year-over-year with a 14.8 percent operating income margin.

• Innovative Pumping Solutions’ revenue for the second quarter was $63.4 million, a sequential increase of 2.3 percent and an increase of 9.8 percent year-over-year with a 16.0 percent operating income margin.

• Supply Chain Services’ revenue for the second quarter was $66.2 million, a 1.3 percent sequential decrease and an increase of 12.3 percent year-over-year with a 8.2 percent operating income margin.

SEGMENT DATA ($ thousands, unaudited)
	Three Months Ended June 30,						Six Months Ended June 30,
Sales	2023			2022			2023			2022
Service Centers	$	298,432		$	251,098		$	593,658		$	469,894
Innovative Pumping Solutions		63,441			57,788			125,439			110,846
Supply Chain Services		66,167			58,926			133,210			106,483
Total Sales	$	428,040		$	367,812		$	852,307		$	687,223
	Three Months Ended June 30,						Six Months Ended June 30,
Operating Income	2023			2022			2023			2022
Service Centers	$	44,129		$	32,368		$	88,834		$	59,719
Innovative Pumping Solutions		10,178			8,726			20,483			15,795
Supply Chain Services		5,416			4,958			10,929			8,978
Total Segments operating income	$	59,723		$	46,052		$	120,246		$	84,492

Reconciliation of Operating Income for Reportable Segments ($ thousands, unaudited)
	Three Months Ended June 30,							Six Months Ended June 30,
	2023				2022			2023				2022
Income from operations for reportable segments	$	59,723			$	46,052		$	120,246			$	84,492
Adjustment for:
Amortization of intangibles		4,582				4,591			9,340				8,826
Corporate expenses		17,661				15,541			38,027				28,186
Income from operations	$	37,480			$	25,920		$	72,879			$	47,480
Interest expense		11,863				5,615			23,384				10,777
Other (income) expense, net		(242	)			839			(712	)			1,377
Income before income taxes	$	25,859			$	19,466		$	50,207			$	35,326

Unaudited Reconciliation of Non-GAAP Financial Information ($ thousands)
The following table is a reconciliation of EBITDA and Adjusted EBITDA, non-GAAP financial measures, to income before taxes, calculated and reported in accordance with U.S. GAAP.
	Three Months Ended June 30,							Six Months Ended June 30,
	2023			2022				2023			2022
Income before income taxes	$	25,859		$	19,466			$	50,207		$	35,326
Plus: interest expense		11,863			5,615				23,384			10,777
Plus: depreciation and amortization		6,703			7,080				13,485			13,832
EBITDA	$	44,425		$	32,161			$	87,076		$	59,935
Plus: NCI income (loss) before tax*	$	—		$	(45	)		$	—		$	68
Plus: stock compensation expense		871			493				1,347			863
Adjusted EBITDA	$	45,296		$	32,609			$	88,423		$	60,866
* NCI represents non-controlling interest

DXP ENTERPRISES, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS ($ thousands)
		June 30, 2023			December 31, 2022
ASSETS
Current assets:
Cash		$	15,533		$	46,026
Restricted cash			91			91
Accounts receivable, net of allowances for doubtful accounts			318,651			320,880
Inventories			104,950			101,392
Costs and estimated profits in excess of billings			46,770			23,588
Prepaid expenses and other current assets			15,274			21,644
Income taxes receivable			7,698			2,493
Total current assets		$	508,967		$	516,114
Property and equipment, net			47,538			45,964
Goodwill			342,273			333,759
Other intangible assets, net of accumulated amortization			72,466			79,585
Operating lease right-of-use assets, net			54,051			57,402
Other long-term assets			9,138			4,456
Total assets		$	1,034,433		$	1,037,280
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of debt		$	4,369		$	4,369
Trade accounts payable			93,978			100,784
Accrued wages and benefits			28,563			26,260
Customer advances			15,555			20,128
Billings in excess of costs and estimated profits			5,333			10,411
Current-portion operating lease liabilities			17,324			18,083
Other current liabilities			42,843			32,866
Total current liabilities		$	207,965		$	212,901
Long-term debt, less unamortized debt issuance costs			408,430			409,205
Long-term operating lease liabilities			37,650			40,189
Other long-term liabilities			8,718			4,701
Deferred income taxes			2,205			4,892
Total long-term liabilities		$	457,003		$	458,987
Total Liabilities		$	664,968		$	671,888
Equity:
Total DXP Enterprises, Inc. equity			369,465			365,392
Total liabilities and equity		$	1,034,433		$	1,037,280

Unaudited Reconciliation of Non-GAAP Financial Information ($ thousands)
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 June 30,								Six Months Ended June 30,
			2023				2022				2023				2022
Net cash from operating activities		$	(2,430	)		$	5,686			$	24,017			$	5,686
Less: purchases of property and equipment			(1,813	)			(1,848	)			(5,617	)			(1,848	)
Free cash flow		$	(4,243	)		$	3,838			$	18,400			$	3,838
Note: Supplemental non-cash items include share repurchases which have been excluded.

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Contacts

Kent Yee 713-996-4700
Senior Vice President, CFO
www.dxpe.com