- $285.5 million in sales, 16.2% sequential increase
- GAAP diluted EPS of $0.40
- $79.3 million in cash and cash equivalents
- Free cash flow for the quarter of $6.8 million
- Closed the acquisition of Carter & Verplanck
DXP Enterprises, Inc. (NASDAQ: DXPE) today announced
preliminary (unreviewed) financial results for the second quarter
ended June 30, 2021. The following are results for the three and
six months ended June 30, 2021, compared to the three and six
months ended June 30, 2020 and sequentially for the three months
ended March 31, 2021, where appropriate. A reconciliation of the
non-GAAP financial measures can be found in the back of this press
release. The preliminary results are unaudited and are based on
management’s initial review of DXP’s financial results for the
three month period ended June 30, 2021.
Second Quarter 2021 financial highlights:
- Sales increased 16.2 percent sequentially to $285.5 million,
compared to $245.6 million for the first quarter of 2021 and
increased 13.6 percent compared to $251.4 million for the second
quarter of 2020.
- Earnings per diluted share for the second quarter was $0.40
based upon 20.1 million diluted shares, compared to $0.12 per share
in the second quarter of June 30, 2020, based on 18.6 million
diluted shares.
- Net income for the second quarter was $8.1 million, compared to
$2.1 million for the prior-year period.
- Adjusted earnings before interest, taxes, depreciation and
amortization (Adjusted EBITDA) for the second quarter of 2021 was
$22.6 million compared to $13.9 million for the first quarter of
2021 and $13.8 million for the second quarter of 2020.
- Cash flow from operations was $7.6 million, compared to $63.4
million for the prior-year period.
- Free cash flow (cash flow from operations less capital
expenditures) for the second quarter of 2021 was $6.8 million,
compared to $61.6 million in the second quarter of 2020.
David R. Little, Chairman and CEO commented, “I am pleased that
DXP’s performance continues to strengthen as we accelerate into the
COVID-19 recovery. Our team continued to improve execution in the
second quarter, driving sequential sales growth, and gross margin
improvement while maintaining cost discipline. As a result of this
performance and the team’s execution, we are confident we will
continue to position DXP for long-term profitable growth and a
positive outlook for the second half of 2021. DXP’s second quarter
2021 sales were $285.5 million, or a 16.2 percent increase over the
first quarter. During the second quarter, sales were $209.5 million
for Service Centers, $39.3 million for Supply Chain Services and
$36.7 million for Innovative Pumping Solutions. Most of our
customers and the markets we serve continue to show improvement. We
remain encouraged by the sequential increases despite the continued
choppiness associated with COVID-19. Thank you to all our customers
and DXPeople for the support and efforts to remain safe and healthy
while moving forward."
Kent Yee, CFO, added, “Our second quarter sequential sales
growth of 16.2 percent and $6.8 million in free cash flow was great
to see. Our financial results reflect our continued focus on our
customers and improving market conditions. As of June 30, 2021, we
had $79.3 million in cash and cash equivalents. We have completed
two acquisitions since the four at year-end, as well as executing
share repurchases which were completed towards the end of the
quarter. We are well on our way into diversifying DXP’s end markets
while creating stakeholder value. We turned DXP’s sales growth into
a 64.6 percent sequential increase in EBITDA and $0.28 per share
year-over-year improvement in earnings per diluted share. Total
debt outstanding as of June 30, 2021 was $328.4 million with senior
leverage of 3.11:1, well under our covenant of 5.75:1.
“We are excited by our sales team’s focus on organic sales
growth as well as the contributions from recent acquisitions. The
teamwork as well as the overall tone at DXP is moving in the right
direction and we look forward to continuing the momentum into the
second half of the year.”
Financial Strength and Liquidity
Net debt, calculated as total long-term debt, net of cash and
cash equivalents, on our balance sheet as of June 30, 2021, was
$249.1 million compared to $201.7 million at March 31, 2021. As of
June 30, 2021, DXP has approximately $210.5 million in liquidity,
consisting of $79.2 million in cash on hand and approximately
$131.3 million in availability under our ABL facility.
DXP will not host a conference call regarding June 30, 2021
second quarter results (see Update on Form 10-Q and Auditor
Review).
Update on Form 10-Q Filing and Auditor Review
During the second quarter, the Company determined it had aged
un-vouchered purchase orders included in trade accounts payable.
After lengthy investigation and research, the Company concluded
that these balances were not valid obligations to vendors and will
never be invoiced or paid. Some of the balances in this account are
more than three years old and are beyond a reasonable expectation
that they will be settled and are not considered legal obligations
of the Company. The Company preliminarily assessed the materiality
of this error in accordance with Staff Accounting Bulletin No. 99,
“Materiality”, and the Company believes that, qualitatively, the
amounts would have no bearing on the decision-making process of a
reasonable investor. The Company applied the guidance in Staff
Accounting Bulletin No. 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year
Financial Statements” and assessing the out of period items’ impact
using the dual approach, as described in the standard, using both
the rollover and iron curtain methods to assess significance and
concluded the impact on prior period financial statements was not
material. The Company continues to review the impact of these items
on prior periods and intends to adjust prior year balances to
reflect the immaterial changes. Our independent registered public
accounting firm has not completed their review procedures on the
adjustment. For the consolidated balance sheets, the Company
expects to reduce trade accounts payable by an estimated $8 million
- $12 million and increase retained earnings by a corresponding
amount less the impacts associated with taxes. In addition, we
expect to reduce the cost of sales in the consolidated statement of
operations and reflect the associated impacts to the provision for
income taxes for the comparative periods presented. Additionally,
we are in the process of assessing the impact of this issue on our
assessment that our internal control over financial reporting is
effective.
Once the analysis is finalized and our independent registered
public accounting firm has completed their review, the Company
intends to revise its consolidated financial statements for the
periods prior to June 30, 2021 through subsequent periodic
filings.
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 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. 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 the COVID-19
pandemic and 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, 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)
(UNREVIEWED)
(UNREVIEWED)
(UNREVIEWED)
Three Months Ended June
30,
Six Months Ended June
30,
2021
2020
2021
2020
Sales
$
285,516
$
251,401
$
531,132
$
552,384
Cost of sales*
200,313
181,705
374,320
398,703
Gross profit
85,203
69,696
156,812
153,681
Selling, general and administrative
expenses
70,432
62,943
135,829
136,013
Operating income
14,771
6,753
20,983
17,668
Other (income) loss
(104)
133
(534)
(701)
Interest expense
5,337
3,930
10,580
8,307
Income before income taxes
9,538
2,690
10,937
10,062
Provision for income taxes
1,606
610
2,877
2,334
Net income
7,932
2,080
8,060
7,728
Net loss attributable to NCI**
(190)
(62)
(402)
(124)
Net income attributable to DXP
Enterprises, Inc.
8,122
2,142
8,462
7,852
Preferred stock dividend
22
22
45
45
Net income attributable to common
shareholders
$
8,100
$
2,120
$
8,417
$
7,807
Diluted earnings per share attributable to
DXP Enterprises, Inc.
$
0.40
$
0.12
$
0.42
$
0.42
Weighted average common shares and common
equivalent shares outstanding
20,131
18,575
20,079
18,559
*Year-to-date fiscal 2021 cost of sales
could potentially be reduced by an immaterial amount, pending final
review of financials. Additionally, year-to-date cost of sales for
fiscal 2020 could include a reduction of less than $1.0M pending
finalization of restatement analysis described above.
**NCI represents non-controlling
interest
Business segment financial highlights:
- Service Centers’ revenue for the
second quarter was $209.5 million, a 12.4 percent sequential
increase and an increase of 36.1 percent year-over-year with a 12.5
percent operating income margin.
- Innovative Pumping Solutions’
revenue for the second quarter was $36.7 million, a sequential
increase of 58.0 percent and a decrease of 39.3 percent
year-over-year with a 13.1 percent operating income margin.
- Supply Chain Services’ revenue for
the second quarter was $39.3 million, a 9.3 percent sequential
increase and a increase of 6.1 percent year-over-year with a 8.9
percent operating income margin.
SEGMENT DATA
($ thousands, unaudited)
(UNREVIEWED)
(UNREVIEWED)
(UNREVIEWED)
(UNREVIEWED)
Three Months Ended June
30,
Six Months Ended June
30,
Sales
2021
2020
2021
2020
Service Centers
$
209,458
$
153,848
$
395,856
$
336,433
Innovative Pumping Solutions
36,727
60,479
59,972
130,500
Supply Chain Services
39,331
37,074
75,304
85,451
Total DXP Sales
$
285,516
$
251,401
$
531,132
$
552,384
Three Months Ended June
30,
Six Months Ended June
30,
Operating Income
2021
2020
2021
2020
Service Centers
$
26,226
$
13,664
$
48,342
$
30,590
Innovative Pumping Solutions
4,803
8,565
5,751
18,993
Supply Chain Services
3,488
3,353
5,810
7,108
Total segments operating income
$
34,517
$
25,582
$
59,903
$
56,691
Reconciliation of Operating
Income for Reportable Segments
($ thousands, unaudited)
(UNREVIEWED)
(UNREVIEWED)
(UNREVIEWED)
(UNREVIEWED)
Three Months Ended June
30,
Six Months Ended June
30,
2021
2020
2021
2020
Operating income for reportable
segments*
$
34,517
$
25,582
$
59,903
$
56,691
Adjustment for:
Amortization of intangibles
4,306
3,046
8,452
6,243
Corporate expenses
15,440
15,783
30,468
32,780
Total operating income
$
14,771
$
6,753
$
20,983
$
17,668
Interest expense
5,337
3,930
10,580
8,307
Other (income) loss
(104)
133
(534)
(701)
Income before income taxes
$
9,538
$
2,690
$
10,937
$
10,062
*See Update on Form 10-Q Filing and
Auditor Review
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.
(UNREVIEWED)
(UNREVIEWED)
(UNREVIEWED)
(UNREVIEWED)
Three Months Ended June
30,
Six Months Ended June
30,
2021
2020
2021
2020
Income before income taxes*
9,538
2,690
10,937
10,062
Plus: interest expense
5,337
3,930
10,580
8,307
Plus: depreciation and amortization
6,958
5,965
13,584
11,990
EBITDA
$
21,833
$
12,585
$
35,101
$
30,359
Plus: NCI loss income before tax**
315
221
598
303
Plus: stock compensation expense
460
983
840
1,887
Adjusted EBITDA
$
22,608
$
13,789
$
36,539
$
32,549
*See Update on Form 10-Q Filing and
Auditor Review
** NCI represents non-controlling
interest
DXP ENTERPRISES, INC. AND
SUBSIDIARIES
UNAUDITED CONDENSED
CONSOLIDATED BALANCE SHEETS
($ thousands, except per share
amounts)
(UNREVIEWED)
June 30, 2021
December 31, 2020
ASSETS
Current assets:
Cash
$
79,169
$
117,353
Restricted cash
91
91
Accounts receivable, net of allowances for
doubtful accounts
191,853
163,429
Inventories
103,447
97,071
Costs and estimated profits in excess of
billings
16,718
18,459
Prepaid expenses and other current
assets
6,914
4,548
Federal income taxes receivable
6,088
5,632
Total current assets
$
404,280
$
406,583
Property and equipment, net
52,456
56,899
Goodwill
300,865
248,339
Other intangible assets, net of
accumulated amortization
83,175
80,088
Operating lease right-of-use assets
56,173
55,188
Other long-term assets
5,448
4,764
Total assets
$
902,397
$
851,861
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt
$
3,300
$
3,300
Trade accounts payable*
91,053
75,744
Accrued wages and benefits
26,240
20,621
Customer advances
7,426
3,688
Billings in excess of costs and estimated
profits
2,300
4,061
Current-portion operating lease
liabilities
17,512
15,891
Other current liabilities
50,004
20,834
Total current liabilities
$
197,835
$
144,139
Long-term debt, less unamortized debt
issuance costs
316,343
317,139
Long-term operating lease liabilities
37,907
38,010
Other long-term liabilities
2,931
2,930
Deferred income taxes
2,520
1,777
Total long-term liabilities
$
359,701
$
359,856
Total Liabilities
$
557,536
$
503,995
Equity:
Total DXP Enterprises, Inc.
equity*
344,465
347,068
Non-controlling interest
396
798
Total Equity
$
344,861
$
347,866
Total liabilities and equity
$
902,397
$
851,861
*See Update on Form 10-Q and Auditor
Review
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 and is an
update to DXP's pre-announcement dated August 5, 2021, for the
three and six months period ended June 30, 2021.
(UNREVIEWED)
(UNREVIEWED)
(UNREVIEWED)
(UNREVIEWED)
Three Months Ended June
30,
Six Months Ended June
30,
2021
2020
2021
2020
Net cash from operating activities
$
7,630
$
63,376
$
18,182
$
61,764
Less: purchases of property and
equipment
(846)
(1,898)
(1,526)
(5,133)
Plus: proceeds from sales of property and
equipment
—
123
1,297
123
Free cash flow
$
6,784
$
61,601
$
17,953
$
56,754
Note: Supplemental non-cash items include share repurchases and
additional accrued purchase price owed, which have been
excluded.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210816005228/en/
Kent Yee Senior Vice President, CFO 713-996-4700
www.dxpe.com
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