DXPE DXP Enterprises Inc

• Sales grew 22.3 percent, including 17.5 percent organic growth
• $308.0 million in sales versus $251.9 million in sales in Q3 2017
• Net income of $8.4 million versus $2.9 million compared to Q3 2017
• GAAP diluted EPS of $0.46, compared to $0.16 in Q3 2017
• $23.2 million in earnings before interest, taxes, depreciation and amortization (“EBITDA”)

DXP Enterprises, Inc. (NASDAQ: DXPE) today announced financial results for the third quarter ended September 30, 2018. The following are results for the three months and nine months ended September 30, 2018, compared to the three months and nine months ended September 30, 2017. A reconciliation of the non-GAAP financial measures can be found in the back of this press release.

Third Quarter 2018 financial highlights:

• Sales increased 22.3 percent to $308.0 million, compared to $251.9 million for the third quarter of 2017.
• Earnings per diluted share for the third quarter was $0.46 based upon 18.4 million diluted shares, compared to $0.16 per share in the third quarter of 2017, based on 18.2 million diluted shares.
• Earnings before interest, taxes, depreciation and amortization (EBITDA) for the third quarter was $23.2 million compared to $13.5 million for the third quarter of 2017, an increase of 71.9 percent. EBITDA as a percentage of sales was 7.5 percent and 5.4 percent, respectively, comparing the third quarter of 2018 versus 2017.

David R. Little, Chairman and CEO commented, “We are pleased with our performance in the third quarter as the team maintained momentum and delivered strong results. The oil and gas and industrial economy remain firm with all key indicators remaining positive. We achieved 22.3 percent sales growth, solid EBITDA margins and outstanding diluted earnings per share growth. DXP’s third quarter 2018 sales were $308.0 million. Organic sales for the quarter increased 17.5 percent year-over-year and acquisitions added $12.1 million in sales. EBITDA grew 71.9 percent year-over-year. In terms of our business segments for the third quarter of 2018, sales were $187.8 million for Service Centers, $76.7 million for Innovative Pumping Solutions and $43.6 million for Supply Chain Services. Business segment operating income increased 55.6 percent year-over-year. Overall, DXP has been trending around 20 percent growth year-over-year which is consistent with our expectations. With the outlook for global economic growth and oil and industrial demand remaining solid, we still look to show improvement in organic and acquisition sales growth and margins. We believe we are well positioned to outgrow the market and to generate improved operating margins and returns for the benefit of our shareholders as we begin to move into 2019.”

Kent Yee, CFO, remarked, “Our third quarter year-over-year financial results continue to reflect the growth we have been experiencing in fiscal 2018 and reflect our financial goals to grow 20 percent year-over-year, through a combination of organic and acquisition sales. On a sales per day basis, DXP continues to show sequential increases and has experienced eight consecutive quarters of sales per day per quarter increases. Total debt outstanding as of September 30, 2018 was $249.6 million. DXP’s secured leverage ratio or net debt to EBITDA ratio was 2.7:1.0. We expect to finish fiscal 2018 with strong momentum continuing into fiscal 2019.”

We will host a conference call regarding 2018 third quarter results on the Company’s website (www.dxpe.com) Monday, November 5, 2018 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 online 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 EndedSeptember 30, Nine Months EndedSeptember 30, 2018   2017 2018   2017   Sales $ 308,028 $ 251,930 $ 905,191 $ 741,155 Cost of sales 223,958   184,967   659,560   540,741   Gross profit 84,070 66,963 245,631 200,414 Selling, general and administrative expenses 67,257   60,453   197,609   175,411   Operating income 16,813 6,510 48,022 25,003 Other (income) expense, net 120 (153 ) (1,318 ) (324 ) Interest expense 4,781   4,928   15,959   12,573   Income before income taxes 11,912 1,735 33,381 12,754 Provision for (benefit from) income taxes 3,550   (1,176 ) 8,962   2,880   Net income 8,362 2,911 24,419 9,874 Net loss attributable to NCI* (35 ) (55 ) (91 ) (360 ) Net income attributable to DXP Enterprises, Inc. 8,397 2,966 24,510 10,234 Preferred stock dividend 23   23   68   68   Net income attributable to common shareholders $ 8,374   $ 2,943   $ 24,442   $ 10,166     Diluted earnings per share attributable to DXP Enterprises, Inc. $ 0.46   $ 0.16   $ 1.33   $ 0.56     Weighted average common shares and common equivalent shares outstanding 18,404   18,234   18,387   18,242     *NCI represents non-controlling interest  

Business segment financial highlights:

• Service Centers’ revenue for the third quarter was $187.8 million, an increase of 16.7 percent year-over-year with an 11.0 percent operating income margin. Organic sales increased 9.2 percent year-over-year.
• Innovative Pumping Solutions’ revenue for the third quarter was $76.7 million, an increase of 50.2 percent year-over-year with a 11.4 percent operating income margin.
• Supply Chain Services’ revenue for the third quarter was $43.6 million, an increase of 8.9 percent year-over-year with a 8.9 percent operating income margin.

       

SEGMENT DATA

 ($ thousands, unaudited)

  Three Months EndedSeptember 30, Nine Months EndedSeptember 30, Sales 2018   2017 2018   2017 Service Centers $ 187,763 $ 160,863 $ 556,700 $ 474,324 Innovative Pumping Solutions 76,662 51,027 218,561 144,555 Supply Chain Services 43,603   40,040   129,930   122,276 Total DXP Sales $ 308,028   $ 251,930   $ 905,191   $ 741,155     Three Months EndedSeptember 30, Nine Months EndedSeptember 30, Operating Income 2018 2017 2018 2017 Service Centers $ 20,590 $ 15,550 $ 58,353 $ 47,308 Innovative Pumping Solutions 8,773 1,838 24,109 7,103 Supply Chain Services 3,886   3,982   12,196   11,758 Total segments operating income $ 33,249   $ 21,370   $ 94,658   $ 66,169          

Reconciliation of Operating Income for Reportable Segments

 ($ thousands, unaudited)

  Three Months EndedSeptember 30, Nine Months EndedSeptember 30, 2018   2017 2018   2017 Operating income for reportable segments $ 33,249 $ 21,370 $ 94,658 $ 66,169 Adjustment for: Amortization of intangibles 4,098 4,336 12,575 12,943 Corporate expenses 12,338   10,524   34,061   28,223   Total operating income 16,813 6,510 48,022 25,003 Interest expense 4,781 4,928 15,959 12,573 Other expense (income), net 120   (153 ) (1,318 ) (324 ) Income before income taxes 11,912   1,735   33,381   12,754            

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 EndedSeptember 30, Nine Months EndedSeptember 30, 2018   2017 2018   2017 Income before income taxes 11,912 1,735 33,381 12,754 Plus: interest expense 4,781 4,928 15,959 12,573 Plus: depreciation and amortization 6,506 6,836 19,710 20,598         EBITDA 23,199   13,499   69,050   45,925   Plus: NCI loss before tax 64 85 120 578 Plus: Stock compensation expense 526 382 2,023 1,392         Adjusted EBITDA 23,789   13,966   71,193   47,895          

DXP ENTERPRISES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 ($ thousands, except per share amounts)

 

  September 30, 2018 December 31, 2017 ASSETS Current assets: Cash $ 15,994 $ 22,047 Restricted Cash 396 3,532 Accounts receivable, net of allowances for doubtful accounts 183,454 167,272 Inventories 116,545 91,413 Costs and estimated profits in excess of billings 38,432 26,915 Prepaid expenses and other current assets 5,640 5,296 Federal income taxes receivable 1,323   1,440 Total current assets 361,784 317,915 Property and equipment, net 52,617 53,337 Goodwill 194,052 187,591 Other intangible assets, net of accumulated amortization 71,783 78,525 Other long-term assets 1,596   1,715 Total assets $ 681,832   $ 639,083   LIABILITIES AND EQUITY Current liabilities: Current maturities of long-term debt $ 3,394 $ 3,381 Trade accounts payable 91,117 80,303 Accrued wages and benefits 16,733 18,483 Customer advances 2,876 2,189 Billings in excess of costs and estimated profits 5,554 4,249 Other current liabilities 16,703   16,220 Total current liabilities 136,377 124,825 Long-term debt, less unamortized debt issuance costs 237,434 238,643 Other long-term liabilities 2,611 — Deferred income taxes 8,048   7,069 Total long-term liabilities 248,093   245,712 Total Liabilities 384,470   370,537 Equity: Total DXP Enterprises, Inc. equity 296,885 267,979 Non-controlling interest 477   567 Total Equity 297,362   268,546 Total liabilities and equity $ 681,832   $ 639,083          

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 EndedSeptember 30, Nine Months EndedSeptember 30, 2018   2017 2018   2017   Net cash provided by operating activities $ 16,825 $ 673 $ 9,842 $ 8,527 Less: purchase of equipment 2,189 1,039 7,705 2,157         Free cash flow 14,636   (366 ) 2,137   6,370  

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DXP Enterprises, Inc.Kent YeeSenior Vice President, CFOwww.dxpe.com