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DXP Enterprises, Inc. Reports Second Quarter 2023 Results

08/08/2023
  • $15.5 million in cash
  • $428.0 million in sales, a 16.4 percent year-over-year increase
  • Net income attributable to common shareholders of $19.0 million versus $14.4 million compared to Q2 2022
  • GAAP diluted EPS of $1.06
  • $45.3 million in earnings before interest, taxes, depreciation & amortization and other non-cash charges ("Adjusted EBITDA")
  • Completed the acquisitions of Riordan Materials Corporation and Florida Valve & Equipment Corp. and Environmental MD

DXP Enterprises, Inc. (NASDAQ: DXPE) today announced financial results for the second quarter ended June 30, 2023. The following are results for the three months ended June 30, 2023, compared to the three months ended June 30, 2022. A reconciliation of the non-GAAP financial measures can be found in the back of this press release.

Second Quarter 2023 financial highlights:

  • Sales increased 16.4 percent to $428.0 million, compared to $367.8 million for the second quarter of 2022 and 0.9 percent compared to the first quarter of 2023.
  • Earnings per diluted share for the second quarter were $1.06 based upon 18.1 million diluted shares, compared to earnings of $0.74 per share in the second quarter of June 30, 2022, based on 19.6 million diluted shares.
  • Net income for the second quarter was $19.1 million, compared to $14.4 million for the corresponding prior-year period.
  • Adjusted EBITDA for the second quarter of 2023 was $45.3 million compared to $32.6 million for the second quarter of 2022. Adjusted EBITDA as a percentage of sales was 10.6 percent and 8.9 percent, respectively.

David R. Little, Chairman and CEO commented, "Second quarter results reflect the resilience and durability of DXP’s business. We are pleased with our sequential sales growth and strength in our gross profit margins. This resulted in operating leverage that produced earnings per share of $1.06. We continue to experience broad-based demand across our key regions, products, and end markets. DXP’s second quarter 2023 sales were $428.0 million, or a 16.4 percent increase over the second quarter of 2022. Organic sales for the quarter, increased 20.2 percent and acquisitions added $7.3 million in sales. Adjusted EBITDA grew $12.7 million, or 38.9 percent over the second quarter of 2022. During the second quarter of 2023, sales were $298.4 million for Service Center, $66.2 million for Supply Chain Services, and $63.4 million for Innovative Pumping Solutions. Overall, we are very pleased with our performance and the progress DXP continues to make as a growth company. We are optimistic that we can show continued sales and profit improvement during the second half of 2023."

Kent Yee, CFO remarked, "This is DXP’s eleventh consecutive quarter of sequential sales increases. We closed two acquisitions and look forward to closing more during the second half of 2023. Our second quarter sales and adjusted EBITDA continues to set new high watermarks. Specifically, this quarter reflects continued execution of our strategic goals and the confidence we have in our balanced mix of business, tremendous teams, and a strong balance sheet to support our key initiatives. Total debt outstanding as of June 30, 2023, was $425.9 million. DXP’s secured leverage ratio or net debt to EBITDA ratio was 2.53:1.0 with a covenant EBITDA of $161.9 million for the last twelve months ending June 30, 2023."

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 facilities. 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 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, 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 for share and per share amounts)

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2023

 

2022

 

2023

 

2022

 

 

 

 

 

 

 

 

 

Sales

 

$

428,040

 

 

$

367,812

 

$

852,307

 

 

$

687,223

 

Cost of sales

 

 

296,188

 

 

 

263,550

 

 

595,414

 

 

 

488,076

 

Gross profit

 

 

131,852

 

 

 

104,262

 

 

256,893

 

 

 

199,147

 

Selling, general and administrative expenses

 

 

94,372

 

 

 

78,342

 

 

184,014

 

 

 

151,667

 

Income from operations

 

 

37,480

 

 

 

25,920

 

 

72,879

 

 

 

47,480

 

Other (income) expense, net

 

 

(242

)

 

 

839

 

 

(712

)

 

 

1,377

 

Interest expense

 

 

11,863

 

 

 

5,615

 

 

23,384

 

 

 

10,777

 

Income before income taxes

 

 

25,859

 

 

 

19,466

 

 

50,207

 

 

 

35,326

 

Provision for income taxes

 

 

6,805

 

 

 

4,973

 

 

13,573

 

 

 

8,305

 

Net income

 

 

19,054

 

 

 

14,493

 

 

36,634

 

 

 

27,021

 

Net income (loss) attributable to NCI*

 

 

 

 

 

60

 

 

 

 

 

(53

)

Net income attributable to DXP Enterprises, Inc.

 

 

19,054

 

 

 

14,433

 

 

36,634

 

 

 

27,074

 

Preferred stock dividend

 

 

22

 

 

 

22

 

 

45

 

 

 

45

 

Net income attributable to common shareholders

 

$

19,032

 

 

$

14,411

 

$

36,589

 

 

$

27,029

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share attributable to DXP Enterprises, Inc.

 

$

1.06

 

 

$

0.74

 

$

2.01

 

 

$

1.39

 

 

 

 

 

 

 

 

 

 

Weighted average common shares and common equivalent shares outstanding

 

 

18,051

 

 

 

19,606

 

 

18,242

 

 

 

19,491

 

 

 

 

 

 

 

 

 

 

*NCI represents non-controlling interest

 

 

 

 

Business segment financial highlights:

  • Service Centers’ revenue for the second quarter was $298.4 million, a 1.1 percent sequential increase and an increase of 18.9 percent year-over-year with a 14.8 percent operating income margin.
  • Innovative Pumping Solutions’ revenue for the second quarter was $63.4 million, a sequential increase of 2.3 percent and an increase of 9.8 percent year-over-year with a 16.0 percent operating income margin.
  • Supply Chain Services’ revenue for the second quarter was $66.2 million, a 1.3 percent sequential decrease and an increase of 12.3 percent year-over-year with a 8.2 percent operating income margin.

SEGMENT DATA

($ thousands, unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

Sales

2023

 

2022

 

2023

 

2022

Service Centers

$

298,432

 

$

251,098

 

$

593,658

 

$

469,894

Innovative Pumping Solutions

 

63,441

 

 

57,788

 

 

125,439

 

 

110,846

Supply Chain Services

 

66,167

 

 

58,926

 

 

133,210

 

 

106,483

Total Sales

$

428,040

 

$

367,812

 

$

852,307

 

$

687,223

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

Operating Income

2023

 

2022

 

2023

 

2022

Service Centers

$

44,129

 

$

32,368

 

$

88,834

 

$

59,719

Innovative Pumping Solutions

 

10,178

 

 

8,726

 

 

20,483

 

 

15,795

Supply Chain Services

 

5,416

 

 

4,958

 

 

10,929

 

 

8,978

Total Segments operating income

$

59,723

 

$

46,052

 

$

120,246

 

$

84,492

Reconciliation of Operating Income for Reportable Segments

($ thousands, unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2023

 

2022

 

2023

 

2022

Income from operations for reportable segments

$

59,723

 

 

$

46,052

 

$

120,246

 

 

$

84,492

Adjustment for:

 

 

 

 

 

 

 

Amortization of intangibles

 

4,582

 

 

 

4,591

 

 

9,340

 

 

 

8,826

Corporate expenses

 

17,661

 

 

 

15,541

 

 

38,027

 

 

 

28,186

Income from operations

$

37,480

 

 

$

25,920

 

$

72,879

 

 

$

47,480

Interest expense

 

11,863

 

 

 

5,615

 

 

23,384

 

 

 

10,777

Other (income) expense, net

 

(242

)

 

 

839

 

 

(712

)

 

 

1,377

Income before income taxes

$

25,859

 

 

$

19,466

 

$

50,207

 

 

$

35,326

 

 

 

 

 

 

 

 

Unaudited Reconciliation of Non-GAAP Financial Information

($ thousands)

 

The following table is a reconciliation of EBITDA and Adjusted EBITDA, non-GAAP financial measures, to income before taxes, calculated and reported in accordance with U.S. GAAP.

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2023

 

2022

 

2023

 

2022

Income before income taxes

$

25,859

 

$

19,466

 

 

$

50,207

 

$

35,326

Plus: interest expense

 

11,863

 

 

5,615

 

 

 

23,384

 

 

10,777

Plus: depreciation and amortization

 

6,703

 

 

7,080

 

 

 

13,485

 

 

13,832

EBITDA

$

44,425

 

$

32,161

 

 

$

87,076

 

$

59,935

 

 

 

 

 

 

 

 

Plus: NCI income (loss) before tax*

$

 

$

(45

)

 

$

 

$

68

Plus: stock compensation expense

 

871

 

 

493

 

 

 

1,347

 

 

863

Adjusted EBITDA

$

45,296

 

$

32,609

 

 

$

88,423

 

$

60,866

* NCI represents non-controlling interest

 

 

 

 

 

 

 

DXP ENTERPRISES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

($ thousands)

 

 

 

 

 

 

 

June 30, 2023

 

December 31, 2022

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash

 

$

15,533

 

$

46,026

Restricted cash

 

 

91

 

 

91

Accounts receivable, net of allowances for doubtful accounts

 

 

318,651

 

 

320,880

Inventories

 

 

104,950

 

 

101,392

Costs and estimated profits in excess of billings

 

 

46,770

 

 

23,588

Prepaid expenses and other current assets

 

 

15,274

 

 

21,644

Income taxes receivable

 

 

7,698

 

 

2,493

Total current assets

 

$

508,967

 

$

516,114

Property and equipment, net

 

 

47,538

 

 

45,964

Goodwill

 

 

342,273

 

 

333,759

Other intangible assets, net of accumulated amortization

 

 

72,466

 

 

79,585

Operating lease right-of-use assets, net

 

 

54,051

 

 

57,402

Other long-term assets

 

 

9,138

 

 

4,456

Total assets

 

$

1,034,433

 

$

1,037,280

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Current maturities of debt

 

$

4,369

 

$

4,369

Trade accounts payable

 

 

93,978

 

 

100,784

Accrued wages and benefits

 

 

28,563

 

 

26,260

Customer advances

 

 

15,555

 

 

20,128

Billings in excess of costs and estimated profits

 

 

5,333

 

 

10,411

Current-portion operating lease liabilities

 

 

17,324

 

 

18,083

Other current liabilities

 

 

42,843

 

 

32,866

Total current liabilities

 

$

207,965

 

$

212,901

Long-term debt, less unamortized debt issuance costs

 

 

408,430

 

 

409,205

Long-term operating lease liabilities

 

 

37,650

 

 

40,189

Other long-term liabilities

 

 

8,718

 

 

4,701

Deferred income taxes

 

 

2,205

 

 

4,892

Total long-term liabilities

 

$

457,003

 

$

458,987

Total Liabilities

 

$

664,968

 

$

671,888

Equity:

 

 

 

 

Total DXP Enterprises, Inc. equity

 

 

369,465

 

 

365,392

Total liabilities and equity

 

$

1,034,433

 

$

1,037,280

Unaudited Reconciliation of Non-GAAP Financial Information

($ thousands)

 

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 June 30,

 

Six Months Ended June 30,

 

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

 

 

 

 

 

 

 

 

Net cash from operating activities

 

$

(2,430

)

 

$

5,686

 

 

$

24,017

 

 

$

5,686

 

Less: purchases of property and equipment

 

 

(1,813

)

 

 

(1,848

)

 

 

(5,617

)

 

 

(1,848

)

Free cash flow

 

$

(4,243

)

 

$

3,838

 

 

$

18,400

 

 

$

3,838

 

 

 

 

 

 

 

 

 

 

Note: Supplemental non-cash items include share repurchases which have been excluded.

 

Kent Yee 713-996-4700
Senior Vice President, CFO
www.dxpe.com

Source: DXP Enterprises, Inc.
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