 | NEWS RELEASE CONTACT: Kent Yee Senior Vice President, CFO www.dxpe.com THE INDUSTRIAL DISTRIBUTION EXPERTS | |||||||
DXP ENTERPRISES REPORTS FOURTH QUARTER AND FISCAL 2020 RESULTS
•Fiscal 2020 sales of $1.0 billion
•Fourth quarter GAAP diluted EPS of $(0.11)
•Fourth quarter and full Year adjusted EPS of $0.19 and 0.76, respectively, excluding non-cash, one-time items and tax normalization
•$117.4 million in cash and cash equivalents
•Free cash flow for the year of $101.1 million
•Closed six acquisitions during the year with approximately $145 million in trailing twelve months net sales
Houston, TX – March 9, 2021 – DXP Enterprises, Inc. (NASDAQ: DXPE) today announced financial results for the fourth quarter and fiscal year ended December 31, 2020. The following are results for the three and twelve months ended December 31, 2020, compared to the three and twelve months ended December 31, 2019 and the three months ended September 30, 2020, where appropriate. A reconciliation of the non-GAAP financial measures can be found in the back of this press release.
Fourth Quarter 2020 financial highlights:
•Sales grew 5.7 percent sequentially to $232.7 million, compared to $220.2 million for the third quarter of 2020.
•Earnings per diluted share for the fourth quarter was $(0.11) based upon 17.8 million diluted shares, compared to $0.12 per share in the fourth quarter of December 31, 2019, based on 18.4 million diluted shares. Excluding inventory impairment charges of $11.5 million and $5.4 million in debt extinguishment costs, earnings per diluted share was $0.19 per share, assuming a 22.9% tax rate.
•Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) for the fourth quarter of 2020 was $13.6 million versus $13.7 million for the third quarter of 2020 and $14.0 million for the fourth quarter of 2019.
•Free cash flow (cash flow from operating activities less capital expenditures) for the fourth quarter of 2020 was $15.3 million
Fiscal Year 2020 financial highlights:
•Sales were $1.0 billion, compared to $1.3 billion for 2019.
• Earnings per diluted share for 2020 of $(1.62) based upon 17.7 million basic shares, compared to $1.96 per share in 2019, based on 18.4 million diluted shares. Excluding non-cash impairment and other one-time charges of $59.9 million and $5.4 million in debt extinguishment costs, earning per diluted share was $0.76 per share, assuming a 22.5% tax rate.
• Adjusted EBITDA for 2020 was $59.8 million compared to $93.6 million for 2019. Adjusted EBITDA as a percentage of sales was 5.9 percent and 7.4 percent, respectively.
•Free cash flow for the full year was $101.1 million
•Closed six acquisitions including four on December 31st, Total Equipment Company, APO Pumps & Compressors, Corporate Equipment Company and Pumping System, Inc.
David R. Little, Chairman and CEO commented, “We are pleased with our fourth quarter results and strong finish to the year as evidenced by closing FY2020 with the refinancing of our Term Loan B and completing four acquisitions. FY2020 was a unique year and presented corporate, societal and individual challenges. Despite the many personal and operational hurdles imposed by the COVID-19 pandemic, DXPeople focused their efforts on creating a better customer experience, improving our culture of belonging and driving profitable growth in our key products and services. DXP's resiliency is evident in our financial results; gross margin expansion, working capital improvement, and delivering sequential growth in the fourth quarter.
DXP's fiscal 2020 total sales were $1.0 billion. Service Center sales were $663 million, followed by Innovative Pumping Solutions at $188 million in sales and Supply Chain Services with $155 million in revenue."
Page 1
| NEWS RELEASE CONTACT: Kent Yee Senior Vice President, CFO www.dxpe.com THE INDUSTRIAL DISTRIBUTION EXPERTS | |||||||
Mr. Little continued, "During the fourth quarter, we grew 5.7 percent sequentially after our sales trough during the third quarter. In the fourth quarter, we achieved $232.7 million in sales, including $4.7 million from acquisitions. We delivered an excellent fourth quarter performance in the midst of continued virus surges and finished the year with good results on all fronts. I am very proud of the entire DXP team for their passion, commitment and teamwork and delivering outstanding service and support to our customers. Our acquisitions bring more exceptional companies to the DXP family. We are entering 2021 with a stronger team, balance sheet and great momentum. As we turn the page to 2021, end markets are showing signs of recovery but the full year economic outlook remains uncertain. We remain focused on those items under our control; investing in key end markets, products and operations; delivering a great customer experience, and building a culture of productivity and high performance. We remain confident in our ability to execute our strategy and deliver a strong performance and growth in 2021 and beyond."
Kent Yee, CFO commented, "Overall, we are pleased with our fourth quarter and full year results. Never before have we encountered a global pandemic, mixed with societal and other challenges. In the midst of such an environment, we generated over $101 million in free cash flow, maintained the health and safety of our employees and executed on our acquisition program closing four acquisitions at year-end, bringing that to a total of six acquisitions in fiscal 2020. We delivered financial results that display our ability to adjust to the current levels of activity while keeping our eyes toward the future with proactive actions including refinancing our term loan and completing four strategic transactions. We successfully refinanced our Term Loan B and raised $330 million that matures in 2027. As of December 31, 2020, we had $117.4 million in cash and cash equivalents on the balance sheet. Our senior leverage was 3.2:1, well under our covenant limit of 5.75:1. We have momentum going to fiscal 2021 and we expect to drive organic and acquisition driven growth."
Financial Strength and Liquidity
Net debt, calculated as total long-term debt, net of cash and cash equivalents, on our balance sheet as of December 31, 2020, was $212.6 million compared to $190.2 million at December 31, 2019. As of December 31, 2020, DXP has approximately $249.2 million in liquidity, consisting of $117.4 million in cash on hand and approximately $131.9 million in availability under our ABL facility.
We will host a conference call regarding December 31, 2020 fourth quarter results on the Company’s website (www.dxpe.com) Tuesday, March 9, 2021 at 10:30 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, 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, 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.
Page 2
| NEWS RELEASE CONTACT: Kent Yee Senior Vice President, CFO www.dxpe.com THE INDUSTRIAL DISTRIBUTION EXPERTS | |||||||
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 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.
Page 3
| NEWS RELEASE CONTACT: Kent Yee Senior Vice President, CFO www.dxpe.com THE INDUSTRIAL DISTRIBUTION EXPERTS | |||||||
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, | |||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||
| Sales | $ | 232,689 | $ | 295,468 | $ | 1,005,266 | $ | 1,267,189 | ||||||||||||||||||
| Cost of sales | 168,402 | 217,135 | 725,997 | 919,965 | ||||||||||||||||||||||
| Gross profit | 64,287 | 78,333 | 279,269 | 347,224 | ||||||||||||||||||||||
| Selling, general and administrative expenses | 56,497 | 71,591 | 246,256 | 281,102 | ||||||||||||||||||||||
| Impairment and other charges | 11,482 | — | 59,883 | — | ||||||||||||||||||||||
| Operating income (loss) | (3,692) | 6,742 | (26,870) | 66,122 | ||||||||||||||||||||||
| Other expense (income), net | 455 | (172) | 74 | (45) | ||||||||||||||||||||||
| Interest expense | 8,512 | 4,587 | 20,571 | 19,498 | ||||||||||||||||||||||
| Income (loss) before income taxes | (12,659) | 2,327 | (47,515) | 46,669 | ||||||||||||||||||||||
| Provision for income taxes (benefit) | (10,632) | 239 | (18,441) | 10,894 | ||||||||||||||||||||||
| Net income (loss) | (2,027) | 2,088 | (29,074) | 35,775 | ||||||||||||||||||||||
| Net (loss) income attributable to NCI* | (115) | (88) | (348) | (260) | ||||||||||||||||||||||
| Net income (loss) attributable to DXP Enterprises, Inc. | (1,912) | 2,176 | (28,726) | 36,035 | ||||||||||||||||||||||
| Preferred stock dividend | 22 | 22 | 90 | 90 | ||||||||||||||||||||||
| Net income (loss) attributable to common shareholders | $ | (1,934) | $ | 2,154 | $ | (28,816) | $ | 35,945 | ||||||||||||||||||
| Diluted earnings (loss) per share attributable to DXP Enterprises, Inc. ** | $ | (0.11) | $ | 0.12 | $ | (1.62) | $ | 1.96 | ||||||||||||||||||
| Weighted average common shares and common equivalent shares outstanding | 17,777 | 18,443 | 17,748 | 18,432 | ||||||||||||||||||||||
| *NCI represents non-controlling interest | ||||||||||||||||||||||||||
| ** Fiscal year 2020 diluted earnings per share for GAAP purposes was calculated using basic weighted average shares outstanding. Due to a loss for the period, convertible preferred stock shares are excluded from the computation of diluted EPS because the effect will be antidilutive. | ||||||||||||||||||||||||||
Page 4
| NEWS RELEASE CONTACT: Kent Yee Senior Vice President, CFO www.dxpe.com THE INDUSTRIAL DISTRIBUTION EXPERTS | |||||||
Business segment financial highlights:
•Service Centers’ revenue for the fiscal year was $662.6 million, a decrease of 13.1 percent year-over-year with a 10.6 percent operating income margin.
◦Revenue for the fourth quarter was $161.3 million, a decrease of 11.6 percent year-over-year with a 10.9 percent operating income margin.
•Innovative Pumping Solutions’ revenue for the fiscal year was $188.0 million, a decrease of 38.1 percent year over year with an 10.0 percent operating income margin.
◦Revenue for the fourth quarter was $35.6 million, a decrease of 45.8 percent year-over-year.
•Supply Chain Services’ revenue for the fiscal year was $154.7 million, a decrease of 23.2 percent year-over-year with a 8.5 percent operating margin.
◦Revenue for the fourth quarter was $35.8 million, a decrease of 24.4 percent year-over-year with a 9.0 percent operating income margin.
SEGMENT DATA
($ thousands, unaudited)
| Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||||||||||
| Sales | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Service Centers | $ | 161,284 | $ | 182,372 | $ | 662,617 | $ | 762,256 | |||||||||||||||
| Innovative Pumping Solutions | 35,615 | 65,735 | 187,991 | 303,655 | |||||||||||||||||||
| Supply Chain Services | 35,790 | 47,361 | 154,658 | 201,278 | |||||||||||||||||||
| Total DXP Sales | $ | 232,689 | $ | 295,468 | $ | 1,005,266 | $ | 1,267,189 | |||||||||||||||
| Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||||||||||
| Operating Income | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Service Centers | $ | 17,643 | $ | 19,497 | $ | 70,385 | $ | 86,778 | |||||||||||||||
| Innovative Pumping Solutions | 2,635 | (29) | 18,715 | 28,895 | |||||||||||||||||||
| Supply Chain Services | 3,210 | 3,465 | 13,218 | 14,445 | |||||||||||||||||||
| Total segments operating income | $ | 23,488 | $ | 22,933 | $ | 102,318 | $ | 130,118 | |||||||||||||||
Page 5
| NEWS RELEASE CONTACT: Kent Yee Senior Vice President, CFO www.dxpe.com THE INDUSTRIAL DISTRIBUTION EXPERTS | |||||||
Reconciliation of Operating Income for Reportable Segments
($ thousands, unaudited)
| Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Operating income for reportable segments | $ | 23,488 | $ | 22,933 | $ | 102,318 | $ | 130,118 | |||||||||||||||
| Adjustment for: | |||||||||||||||||||||||
| Impairment and other charges | 11,482 | — | 59,883 | — | |||||||||||||||||||
| Amortization of intangibles | 2,991 | 3,651 | 12,287 | 15,074 | |||||||||||||||||||
| Corporate expenses | 12,707 | 12,540 | 57,018 | 48,922 | |||||||||||||||||||
| Total operating income (loss) | $ | (3,692) | $ | 6,742 | $ | (26,870) | $ | 66,122 | |||||||||||||||
| Interest and other financing expenses | 8,512 | 4,587 | 20,571 | 19,498 | |||||||||||||||||||
| Other expense (income), net | 455 | (172) | 74 | (45) | |||||||||||||||||||
| Income (loss) before income taxes | $ | (12,659) | $ | 2,327 | $ | (47,515) | $ | 46,669 | |||||||||||||||
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 December 31, | Twelve Months Ended December 31, | |||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||
| Income (loss) before income taxes | (12,659) | 2,327 | $ | (47,515) | $ | 46,669 | ||||||||||||||||||||
| Plus: interest and other financing expenses | 8,512 | 4,587 | 20,571 | 19,498 | ||||||||||||||||||||||
| Plus: depreciation and amortization | 5,389 | 6,481 | 22,683 | 25,174 | ||||||||||||||||||||||
| EBITDA | $ | 1,242 | $ | 13,395 | $ | (4,261) | $ | 91,341 | ||||||||||||||||||
| Plus: NCI loss income before tax* | 232 | 114 | 632 | 342 | ||||||||||||||||||||||
| Plus: Impairment and other charges | 11,482 | — | 59,883 | — | ||||||||||||||||||||||
| Plus: stock compensation expense | 662 | 461 | 3,532 | 1,963 | ||||||||||||||||||||||
| Adjusted EBITDA | $ | 13,618 | $ | 13,970 | $ | 59,786 | $ | 93,646 | ||||||||||||||||||
| * NCI represents non-controlling interest | ||||||||||||||||||||||||||
Page 6
| NEWS RELEASE CONTACT: Kent Yee Senior Vice President, CFO www.dxpe.com THE INDUSTRIAL DISTRIBUTION EXPERTS | |||||||
XP ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
($ thousands, except per share amounts)
| December 31, 2020 | December 31, 2019 | |||||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash | $ | 117,353 | $ | 54,203 | ||||||||||
| Restricted cash | 91 | 124 | ||||||||||||
| Accounts receivable, net of allowances for doubtful accounts | 163,429 | 187,116 | ||||||||||||
| Inventories | 97,071 | 129,364 | ||||||||||||
| Costs and estimated profits in excess of billings | 18,459 | 32,455 | ||||||||||||
| Prepaid expenses and other current assets | 4,548 | 4,223 | ||||||||||||
| Federal income taxes receivable | 5,632 | 996 | ||||||||||||
| Total current assets | $ | 406,583 | $ | 408,481 | ||||||||||
| Property and equipment, net | 56,899 | 63,703 | ||||||||||||
| Goodwill | 248,339 | 194,052 | ||||||||||||
| Other intangible assets, net of accumulated amortization | 80,088 | 52,582 | ||||||||||||
| Operating lease right-of-use assets | 55,188 | 66,191 | ||||||||||||
| Other long-term assets | 4,764 | 3,211 | ||||||||||||
| Total assets | $ | 851,861 | $ | 788,220 | ||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Current maturities of long-term debt | $ | 3,300 | $ | 2,500 | ||||||||||
| Trade accounts payable | 75,744 | 76,438 | ||||||||||||
| Accrued wages and benefits | 20,621 | 23,412 | ||||||||||||
| Customer advances | 3,688 | 3,408 | ||||||||||||
| Billings in excess of costs and estimated profits | 4,061 | 11,871 | ||||||||||||
| Current-portion operating lease liabilities | 15,891 | 17,603 | ||||||||||||
| Other current liabilities | 20,834 | 12,939 | ||||||||||||
| Total current liabilities | $ | 144,139 | $ | 148,171 | ||||||||||
| Long-term debt, less unamortized debt issuance costs | 317,139 | 235,419 | ||||||||||||
| Long-term operating lease liabilities | 38,010 | 48,605 | ||||||||||||
| Other long-term liabilities | 2,930 | 1,205 | ||||||||||||
| Deferred income taxes | 1,777 | 9,872 | ||||||||||||
| Total long-term liabilities | $ | 359,856 | $ | 295,101 | ||||||||||
| Total Liabilities | $ | 503,995 | $ | 443,272 | ||||||||||
| Equity: | ||||||||||||||
| Total DXP Enterprises, Inc. equity | 347,068 | 343,802 | ||||||||||||
| Non-controlling interest | 798 | 1,146 | ||||||||||||
| Total Equity | $ | 347,866 | $ | 344,948 | ||||||||||
| Total liabilities and equity | $ | 851,861 | $ | 788,220 | ||||||||||
Page 7
| NEWS RELEASE CONTACT: Kent Yee Senior Vice President, CFO www.dxpe.com THE INDUSTRIAL DISTRIBUTION EXPERTS | |||||||
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, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Net cash from operating activities | $ | 15,435 | $ | 33,822 | $ | 107,675 | $ | 41,306 | |||||||||||||||
| Less: purchases of property and equipment | (142) | (7,873) | (6,672) | (22,120) | |||||||||||||||||||
| Plus: proceeds from sales of property and equipment | — | — | 123 | 35 | |||||||||||||||||||
| Free cash flow | $ | 15,293 | $ | 25,949 | $ | 101,126 | $ | 19,221 | |||||||||||||||
The following table is a reconciliation of adjusted net income, a non-GAAP financial measure, to net income, calculated and reported in accordance with U.S. GAAP.
| Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| GAAP Net Income (Loss) : | $ | (1,934) | $ | 2,176 | $ | (28,816) | $ | 36,035 | |||||||||||||||
| Impairment and other charges | 11,482 | — | 59,883 | — | |||||||||||||||||||
| Extinguishment of debt in connection with refinancing | 5,443 | — | 5,443 | — | |||||||||||||||||||
| Adjustment for taxes* | (11,527) | — | (22,363) | — | |||||||||||||||||||
| Non-GAAP net income | $ | 3,464 | $ | 2,176 | $ | 14,147 | $ | 36,035 | |||||||||||||||
| Weighted average common shares and common equivalent shares outstanding ** | |||||||||||||||||||||||
| Basic | 17,777 | 17,603 | 17,748 | 17,592 | |||||||||||||||||||
| Diluted | 17,777 | 18,443 | 17,748 | 18,432 | |||||||||||||||||||
| Diluted earnings (loss) per share: | |||||||||||||||||||||||
| GAAP ** | $ | (0.11) | $ | 0.12 | $ | (1.62) | $ | 1.96 | |||||||||||||||
| Non-GAAP | $ | 0.19 | $ | 0.12 | $ | 0.76 | $ | 1.96 | |||||||||||||||
* Adjustment for taxes relates to the tax effects of the adjustments that we incorporated into non-GAAP measures in order to provide a more meaningful measure of non-GAAP net income. Also, we have included an adjustment for the normalizing of tax credits and adjustments. For tax purposes the year-to-date effective tax rate of 22.5 percent was applied to the impairment and other charges for conservative purposes. | |||||||||||||||||||||||
| ** Fiscal year 2020 diluted earnings per share for GAAP purposes was calculated using basic weighted average shares outstanding. Due to a loss for the period, convertible preferred stock shares are excluded from the computation of diluted EPS because the effect will be antidilutive. | |||||||||||||||||||||||
Page 8