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DXP Enterprises Reports Third Quarter 2019 Results

HOUSTON--(BUSINESS WIRE)--

  • $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. (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

 

 

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