DXP Enterprises Announces Fourth Quarter and Fiscal 2019 Results

DXP Enterprises, Inc. (NASDAQ: DXPE) today announced financial results for the fourth quarter and year ended December 31, 2019. The following are results for the three months and twelve months ended December 31, 2019, compared to the three months and twelve months ended December 31, 2018. A reconciliation of the non-GAAP financial measures can be found in the back of this press release.

Fourth Quarter 2019 financial highlights:

• Sales decreased 5.0 percent to $295.5 million, compared to $311.0 million for the fourth quarter of 2018.
• Earnings per diluted share for the fourth quarter was $0.12 based upon 18.4 million diluted shares, compared to $0.60 per share in the fourth quarter of 2018, based on 18.4 million diluted shares.

Fiscal Year 2019 financial highlights:

• Sales increased 4.2 percent to $1.3 billion, compared to $1.2 billion for 2018.
• Earnings per diluted share for 2019 of $1.96 based upon 18.4 million diluted shares, compared to $1.94 per share in 2018, based on 18.4 million diluted shares.
• Earnings before interest, taxes, depreciation and amortization (EBITDA) for 2019 was $91.3 million compared to $95.8 million for 2018. EBITDA as a percentage of sales was 7.2 percent and 7.9 percent, respectively.
• $13 million in growth capital expenditures

David R. Little, Chairman and CEO commented, “DXP reported fiscal 2019 sales of $1.3 billion, a 4.2 percent growth over 2018. We invested in expanding our facilities, products and corporate support capabilities in FY 2019. Overall performance was positive with more strength during the first half of the year versus the third and fourth quarter. Despite the changing market environment, we made a decision to invest in the business and position DXP to continue to take market share. We believe our financial performance during the second half of the year reflects our oil and gas customers reaching their budget limits towards the end of the third quarter and remaining disciplined on the capital spending side through the fourth quarter. Our IPS segment was impacted the most but we expect to show improvement as we move through fiscal 2020. Underlying demand in our end markets has wavered but we continue to take market share and focus on execution. Fiscal 2019 sales for Supply Chain Services grew 15.4 percent, Innovative Pumping Solutions grew 4.1 percent and Service Centers grew 1.6 percent. DXP produced total EBITDA of $91.3 million in fiscal 2019 along with $26 million in free cash flow generation during the fourth quarter.

“We opened Fiscal 2020 closing two acquisitions and we will continue to focus on delivering margin expansion, strong returns on capital and free cash flow generation. We remain committed to taking market share, growing the business, both organically and through acquisitions. We are focused on providing the right solutions for our customers, while continuously improving our operational performance even in a changing end market backdrop. Fiscal 2020 will be a year where we cannot take anything for granted but focus on executing our strategy and business plan.”

Kent Yee, CFO commented, “Fiscal 2019 financial performance reflects our plan to invest in the business while operating in a changing macro and industry environment. During the first and second quarter, we were on pace to grow the business 8 percent on a year-over-year basis. In the second half of fiscal 2019, we essentially grew the business 0.6 percent. Total sales for the fiscal year grew 4.2 percent. Our fiscal 2019 diluted earnings per share was $1.96. We spent $22.1 million on capital expenditures, of which $13.1 million was growth related versus maintenance. Our balance sheet remains positioned to support the business over the long term. DXP ended the year with $54.3 million in cash on the balance sheet and net debt of $190.2 million. DXP's secured leverage ratio or net debt to EBITDA was 2.23 :1.0. We have momentum going into fiscal 2020, closing two acquisitions and we expect to drive more acquisition growth.”

We will host a conference call regarding 2019 fourth quarter and year-ended results on the Company’s website (www.dxpe.com) Friday, March 6, 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.

Business Segment financial highlights:

• Service Centers' revenue for the fiscal year was $762.3 million, an increase of 1.6 percent year-over-year with a 11.4 percent operating income margin.
  • Revenue for the fourth quarter was $182.4 million, a decrease of 5.7 percent year-over-year with a 10.7 percent operating income margin.

• Innovative Pumping Solutions’ revenue for the fiscal year was $303.7 million, an increase of 4.1 percent year over year with an 9.5 percent operating income margin.
  • Revenue for the fourth quarter was $65.7 million, a decrease of 10.1 percent year-over-year with a flat or 0.0 percent operating income margin.

• Supply Chain Services’ revenue for the fiscal year was $201.3 million, an increase of 15.4 percent year-over-year with a 7.2 percent operating margin.
  • Revenue for the fourth quarter was $47.4 million, an increase of 6.4 percent year-over-year with a 7.3 percent operating income margin.

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 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 December 31,									Twelve Months Ended December 31,
		2019					2018				2019				2018
Sales		$	295,468				$	311,006			$	1,267,189			$	1,216,197
Cost of sales		217,135					224,429				919,965				883,989
Gross profit		78,333					86,577				347,224				332,208
Selling, general and administrative expenses		71,591					66,148				281,102				263,757
Operating income		6,742					20,429				66,122				68,451
Other (income) expense, net		(172		)			126				(45		)		(1,192		)
Interest expense		4,587					4,978				19,498				20,937
Income before income taxes		2,327					15,325				46,669				48,706
Provision for (benefit from) income taxes		239					4,223				10,894				13,185
Net income		2,088					11,102				35,775				35,521
Net income (loss) attributable to NCI*		(88		)			(20		)		(260		)		(111		)
Net income attributable to DXP Enterprises, Inc.		2,176					11,122				36,035				35,632
Preferred stock dividend		22					22				90				90
Net income attributable to common shareholders		$	2,154				$	11,100			$	35,945			$	35,542
Diluted earnings per share attributable to DXP Enterprises, Inc.		$	0.12				$	0.60			$	1.96			$	1.94
Weighted average common shares and common equivalent shares outstanding		18,443					18,410				18,432				18,393
*NCI represents non-controlling interest

SEGMENT DATA ($ thousands, unaudited)
		Three Months Ended December 31,								Twelve Months Ended December 31,
Sales		2019				2018				2019				2018
Service Centers		$	182,372			$	193,343			$	762,256			$	750,044
Innovative Pumping Solutions		65,735				73,137				303,655				291,697
Supply Chain Services		47,361				44,526				201,278				174,456
Total DXP Sales		$	295,468			$	311,006			$	1,267,189			$	1,216,197
		Three Months Ended December 31,								Twelve Months Ended December 31,
Operating Income		2019				2018				2019				2018
Service Centers		$	19,497			$	22,366			$	86,778			$	80,718
Innovative Pumping Solutions		(29		)		9,833				28,895				33,943
Supply Chain Services		3,465				4,008				14,445				16,204
Total Segment Operating Income		$	22,933			$	36,207			$	130,118			$	130,865

Reconciliation of Operating Income for Reportable Segments ($ thousands, unaudited)
		Three Months Ended December 31,								Twelve Months Ended December 31,
		2019				2018				2019				2018
Operating income for reportable segments		$	22,933			$	36,207			$	130,118			$	130,865
Adjustment for:
Amortization of intangibles		3,651				4,011				15,074				16,586
Corporate expenses		12,540				11,767				48,922				45,828
Total operating income		$	6,742			$	20,429			$	66,122			$	68,451
Interest expense		4,587				4,978				19,498				20,937
Other expense (income), net		(172		)		126				(45		)		(1192		)
Income before income taxes		$	2,327			$	15,325			$	46,669			$	48,706

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 December 31,								Twelve Months Ended December 31,
		2019				2018				2019				2018
Income before income taxes		$	2,327			$	15,325			$	46,669			$	48,706
Plus: interest expense		4,587				4,978				19,498				20,937
Plus: depreciation and amortization		6,481				6,454				25,174				26,164
EBITDA		13,395				26,757				91,341				95,807
Plus: NCI loss(gain) before tax		114				37				342				157
Plus: Stock compensation expense		461				526				1,963				2,549
Adjusted EBITDA		13,970				27,320				93,646				98,513

DXP ENTERPRISES, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS ($ thousands, except per share amounts)
		December 31, 2019				December 31, 2018
ASSETS
Current assets:
Cash		$	54,203			$	40,304
Restricted Cash		124				215
Accounts receivable		187,116				191,829
Inventories		129,364				114,830
Costs and estimated profits in excess of billings		32,455				32,514
Prepaid expenses and other current assets		4,223				4,938
Federal income taxes receivable		996				960
Total current assets		$	408,481			$	385,590
Property and equipment, net		63,703				51,330
Goodwill		194,052				194,052
Other intangible assets, net of accumulated amortization		52,582				67,207
Operating lease ROU assets		66,191				—
Other long-term assets		3,211				1,783
Total assets		$	788,220			$	699,962
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt		$	2,500			$	3,407
Trade accounts payable		76,438				87,407
Accrued wages and benefits		23,412				21,275
Customer advances		3,408				3,223
Billings in excess of costs and estimated profits		11,871				10,696
Short-term operating lease liabilities		17,603				—
Other current liabilities		12,939				17,269
Total current liabilities		$	148,171			$	143,277
Long-term debt, less unamortized debt issuance costs		235,419				236,979
Long-term operating lease liabilities		48,605				—
Other long-term liabilities		1,205				2,819
Deferred income taxes		9,872				8,633
Total long-term liabilities		$	295,101			$	248,431
Total Liabilities		$	443,272			$	391,708
Equity:
Total DXP Enterprises, Inc. equity		$	343,802			$	306,848
Non-controlling interest		1,146				1,406
Total Equity		$	344,948			$	308,254
Total liabilities and equity		$	788,220			$	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 December 31,								Twelve Months Ended December 31,
		2019				2018				2019				2018
Net cash provided by operating activities		$	33,823			$	25,998			$	41,307			$	35,840
Less: purchase of equipment		7,873				1,618				22,120				9,323
Plus: proceeds from sales of assets		—				12				35				2,558
Free cash flow		$	25,950			$	24,392			$	19,222			$	29,075

 

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