- $32.9 million in cash and cash equivalents on the balance
sheet
- $131.6 million in availability under ABL facility
- $301.0 million in sales, compared to $311.2 million in sales in
Q1 2019
- Net income of $5.7 million
- GAAP diluted EPS of $0.31
- $17.8 million in earnings before interest, taxes, depreciation
and amortization (“EBITDA”)
DXP Enterprises, Inc. (NASDAQ: DXPE) today announced
financial results for the first quarter ended March 31, 2020. The
following are results for the three months ended March 31, 2020,
compared to the three months ended March 31, 2019. A reconciliation
of the non-GAAP financial measures can be found in the back of this
press release.
First Quarter 2020 financial highlights:
- Sales decreased 3.3 percent to $301.0 million, compared to
$311.2 million for the first quarter of 2019.
- Earnings per diluted share for the first quarter was $0.31
based upon 18.6 million diluted shares, compared to $0.40 per share
in the first quarter of March 31, 2019, based on 18.4 million
diluted shares.
- Earnings before interest, taxes, depreciation and amortization
(EBITDA) for the first quarter was $17.8 million compared to $21.1
million for the first quarter of 2019.
- Expanded ABL facility from $85 million to $135 million with no
changes in pricing or terms.
David R. Little, Chairman and CEO commented, “These are
unprecedented times and I want to thank each of our DXPeople for
their efforts and commitment. DXP appreciates the help of all
medical professionals and first responders in our various
communities. Also, DXP appreciates the support of our DXP suppliers
as we navigate our new normal together. As an ‘essential business’,
we felt responsible to provide excellent service to our customers
(who themselves were deemed as 'essential'). By providing products
and services, we were assisting them in keeping the economy
functioning during these difficult times. In terms of our
priorities at DXP, our first priority was the health and safety of
our DXPeople and supporting national efforts to stop the spread of
the Coronavirus. We took immediate steps in the U.S.A, Canada and
Dubai at our facilities by working in small teams and or through
work rotations. We did this so that if we needed to quarantine one
team, we could still continue to serve our customers. Additionally,
we had our facilities deploy social distancing in the workplace,
frequent hand washing and sanitizing, temperature testing,
quarantines, and remote work habits in the situations and
circumstances where we could. We strongly encouraged our employees
to not just maintain some of these protocols at work but also while
at home or outside of the workplace. Out of DXP’s 2,700 plus
DXPeople, I am proud that we have had only two confirmed cases of
coronavirus thus far. Our second priority has been to continue to
provide exceptional service and support to our customers, as we
support various industries that keep the wheels of the North
America economy going. We are thankful that we had the opportunity
to support and serve our customers and make a difference. During
these times, DXPeople have done some amazing things for our
customers to keep them safe and running as an ‘essential business’.
The letters and emails that we have received showing appreciation
and regards for our support, have been truly heart-warming. Our
third priority has been to manage our balance sheet on expected
lower near-term demand to remain strong and posed for an eventual
recovery. I am very proud of how our DXP team has managed and
balanced these priorities in what is an unprecedented and unique
environment.”
Mr. Little continued, “We executed well in this challenging
environment. During the first quarter, we achieved $301.0 million
in sales, including $5.2 million from acquisitions. Our improvement
in diluted earnings per share from the fourth quarter speaks to our
team’s execution and focus on continuous improvement. In terms of
our business segments for the first quarter, sales were $182.6
million for Service Centers, $70.0 million for Innovative Pumping
Solutions and $48.4 million for Supply Chain Services. We delivered
on our financial results as the market adjusted to various
shelter-in-place orders. DXP has a model that is characterized by
high levels of MRO spend, low fixed costs, low capital expenditure
requirements, and high levels of operating cash flow when the
business cycles. For these reasons, and many others, we are highly
confident in our ability to successfully navigate the situation. We
believe our strong balance sheet and financial liquidity will allow
us to continue making strategic investments in our business, where
appropriate. Similar to the 2008, 2015 and 2016 business downturns,
we believe our experienced management team positions us to best
take advantage of a return to more normal business conditions in
the future.”
Kent Yee, CFO commented, “The first quarter of 2020 financial
results were great to see. Creating a safe haven while continuing
to work has been our goal from the beginning, especially once
deemed an ‘essential business’. As we adjusted to the impact of the
Coronavirus, from a business standpoint, we quickly transitioned to
focusing on maintaining the strength in our balance sheet by
ensuring debt capacity and liquidity, driving efficiencies
throughout the business, and ensuring our cash flow profile would
perform in today’s environment. In March, we expanded our asset
based loan facility to $135 million with no change to pricing or
terms. At March 31st, we were undrawn and had $131.6 million in
capacity. The ABL matures in August 2022 and our term loan matures
in August 2023, therefore, we have no near term maturities. As of
March 31, 2020, we had $32.9 million in cash and cash equivalents
on the balance sheet. Our senior leverage was 2.2:1 with a covenant
at the end of Q1 of 4.75:1.”
Mr. Yee added, “DXP is well-positioned to support its customers,
employees and suppliers. We will continue to take the steps to
manage our business by tightening our expenses and capital spending
and actively managing our balance sheet. We believe that we have
ample flexibility to navigate through the uncertain times ahead. As
a leading distributor to essential industries, DXP remains well
positioned to support our customers, suppliers and communities
during this extraordinary time, while continuing to build our
capabilities and keeping our eyes on the future.”
Balance Sheet, Liquidity, Cash Flow and Financial
Flexibility
Net debt, calculated as long-term debt, net of cash and cash
equivalents, on our balance sheet as of March 31, 2020, was $211.0
million compared to $217.3 million at March 31, 2019. As of March
31, 2020, DXP has approximately $164.3 million in liquidity,
consisting of $32.7 million in cash on hand and approximately
$131.6 million in availability under our ABL facility. While we
expect demand to trough in the second quarter, our flexible balance
sheet, liquidity, and cash flow generation (that begins to pick up
from Q2 through Q4), gives us tremendous confidence to successfully
manage the impact of fluctuating and lower demand as a result of
the various shelter-in-place orders and local decisions on when and
how to open local economies.
Response to the Coronavirus Pandemic
Although the impact of COVID-19 on our Q1 results was limited,
it progressively worsened toward quarter end as shelter in place
orders took hold in the United States and Canada. In anticipation
of the economic downturn and softer demand, we took decisive
actions to align our cost structure with the current environment
and protect our balance sheet.
The Company’s actions included:
- Emphasizing and implementing good hygiene protocol at all
facilities
- Implementing a temporary hiring freeze, travel restrictions and
wage freeze
- Expanding our $85 million ABL facility to $135 million
- Internal focus on cash management and monitoring likely areas
of exposure
We will host a conference call regarding March 31, 2020 first
quarter results on the Company’s website (www.dxpe.com) Friday, May
8, 2020 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, free cash flow 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 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. 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 March
31,
2020
2019
Sales
$
300,983
$
311,225
Cost of sales
216,998
227,025
Gross profit
83,985
84,200
Selling, general and administrative
expenses
73,070
69,384
Operating income
10,915
14,816
Other expense (income), net
(834)
(33)
Interest expense
4,377
5,040
Income before income taxes
7,372
9,809
Provision for income taxes
1,724
2,622
Net income
5,648
7,187
Net (loss) income attributable to NCI*
(62)
(104)
Net income attributable to DXP
Enterprises, Inc.
5,710
7,291
Preferred stock dividend
23
23
Net income attributable to common
shareholders
$
5,687
$
7,268
Diluted earnings per share attributable to
DXP Enterprises, Inc.
$
0.31
$
0.40
Weighted average common shares and common
equivalent shares outstanding
18,553
18,406
*NCI represents non-controlling
interest
Business segment financial highlights:
- Service Centers’ revenue for the
first quarter was $182.6 million, a decrease of 1.9 percent
year-over-year with a 9.3 percent operating income margin.
- Innovative Pumping Solutions’
revenue for the third quarter was $70.0 million, a decrease of 6.3
percent year-over-year with a 14.9 percent operating income
margin.
- Supply Chain Services’ revenue for
the third quarter was $48.4 million, a decrease of 3.9 percent
year-over-year with a 7.8 percent operating income margin.
SEGMENT DATA
($ thousands, unaudited)
Three Months Ended March
31,
Sales
2020
2019
Service Centers
$
182,585
$
186,179
Innovative Pumping Solutions
70,021
74,723
Supply Chain Services
48,377
50,323
Total DXP Sales
$
300,983
$
311,225
Three Months Ended March
31,
Operating Income
2020
2019
Service Centers
$
16,926
$
18,980
Innovative Pumping Solutions
10,428
6,799
Supply Chain Services
3,755
4,086
Total segments operating income
$
31,109
$
29,865
Reconciliation of Operating
Income for Reportable Segments
($ thousands, unaudited)
Three Months Ended March
31,
2020
2019
Operating income for reportable
segments
$
31,109
$
29,865
Adjustment for:
Amortization of intangibles
3,197
3,814
Corporate expenses
16,997
11,235
Total operating income
$
10,915
$
14,816
Interest expense
4,377
5,040
Other income, net
(834)
(33)
Income before income taxes
$
7,372
$
9,809
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 March
31,
2020
2019
Income before income taxes
$
7,372
$
9,809
Plus: interest expense
4,377
5,040
Plus: depreciation and amortization
6,025
6,206
EBITDA
$
17,774
$
21,055
Plus: NCI loss (gain) income before
tax*
82
137
Plus: stock compensation expense
904
505
Adjusted EBITDA
$
18,760
$
21,697
* NCI represents non-controlling
interest
DXP ENTERPRISES, INC. AND
SUBSIDIARIES
UNAUDITED CONDENSED
CONSOLIDATED BALANCE SHEETS
($ thousands, except per share
amounts)
As of
March 31, 2020
December 31, 2019
ASSETS
Current assets:
Cash
$
32,730
$
54,203
Restricted cash
124
124
Accounts receivable, net of allowances for
doubtful accounts
194,061
187,116
Inventories
133,021
129,364
Costs and estimated profits in excess of
billings
35,756
32,455
Prepaid expenses and other current
assets
6,776
4,223
Federal income taxes receivable
840
996
Total current assets
$
403,308
$
408,481
Property and equipment, net
63,867
63,703
Goodwill
202,502
194,052
Other intangible assets, net of
accumulated amortization
53,324
52,582
Operating lease right-of-use assets
65,268
66,191
Other long-term assets
3,422
3,211
Total assets
$
791,691
$
788,220
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt
$
2,500
$
2,500
Trade accounts payable
82,647
76,438
Accrued wages and benefits
18,387
23,412
Customer advances
5,830
3,408
Billings in excess of costs and estimated
profits
4,535
11,871
Current-portion operating lease
liabilities
15,926
17,603
Other current liabilities
14,727
12,939
Total current liabilities
$
144,552
$
148,171
Long-term debt, less unamortized debt
issuance costs
235,263
235,419
Long-term operating lease liabilities
47,480
48,605
Other long-term liabilities
708
1,205
Deferred income taxes
11,468
9,872
Total long-term liabilities
$
294,919
$
295,101
Total Liabilities
$
439,471
$
443,272
Equity:
Total DXP Enterprises, Inc.
equity
351,136
343,802
Non-controlling interest
1,084
1,146
Total Equity
$
352,220
$
344,948
Total liabilities and equity
$
791,691
$
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 March
31,
2020
2019
Net cash from (used in) operating
activities
$
(1,612)
$
(5,310)
Less: purchases of property and
equipment
3,235
2,312
Plus: proceeds from sales of property and
equipment
—
29
Free cash flow
$
(4,847)
$
(7,593)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200508005090/en/
Kent Yee, 713-996-4700 Senior Vice President, CFO
www.dxpe.com
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