DXP Enterprises, Inc. (the “Company” or “DXPE”) (NASDAQ: DXPE) today announced financial results for the third quarter ended September 30, 2023. The following are results for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, and for the three months ended June 30, 2023, where appropriate. A reconciliation of the non-GAAP financial measures can be found in the back of this press release.
“The Company posted solid third-quarter results in a lessening inflationary market and varied spending by our customers, delivering solid sales, Adjusted EBITDA, earnings per share and Free Cash Flow performance,” said David R. Little, Chairman and Chief Executive Officer.
Third Quarter 2023 financial highlights:
- Sales increased 8.2 percent to $419.2 million, compared to $387.3 million for the third quarter of 2022, and decreased 2.1 percent compared to the second quarter of 2023.
- Net income increased 16.1 percent for the third quarter to $16.2 million, compared to $13.9 million for the corresponding prior-year period.
- Earnings per diluted share for the third quarter was $0.93 based upon 17.4 million diluted shares, compared to earnings of $0.71 per diluted share in the third quarter of September 30, 2022, based on 19.7 million diluted shares.
- Adjusted EBITDA for the third quarter of 2023 was $44.0 million compared to $34.3 million for the third quarter of 2022. Adjusted EBITDA as a percentage of sales, or Adjusted EBITDA Margin, was 10.5 percent and 8.9 percent, respectively.
- Free Cash Flow for the third quarter of 2023 was $38.3 million compared to $(5.0) million for the third quarter of 2022
David R. Little, Chairman and Chief Executive Officer continued, “We are pleased with our performance in the third quarter as the team maintained momentum and delivered strong year-over-year results. We achieved 8.2 percent sales growth year-over-year, and solid ten percent plus EBITDA margins and growth. DXP’s third quarter 2023 sales were $419.2 million. Adjusted EBITDA grew 28.3 percent year-over-year. In terms of our business segments for the third quarter of 2023, sales were $294.5 million for Service Centers, $59.0 million for Innovative Pumping Solutions and $65.8 million for Supply Chain Services. Business segment operating income increased 20.3 percent year-over-year. 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 2024.”
Kent Yee, Chief Financial Officer and Senior Vice President, remarked, “Our third quarter year-over-year financial results continue to reflect the growth we have been experiencing in fiscal year 2023, and reflect our financial goals to grow through a combination of organic and acquisition sales. We had a strong quarter of Free Cash Flow generation, producing $38.3 million in Free Cash Flow during the third quarter. Total debt outstanding as of September 30, 2023, was $424.9 million. DXP’s secured leverage ratio or net debt to EBITDA ratio was 2.3:1.0 with a covenant EBITDA of $168.5 million for the last twelve-months ending September 30, 2023. Subsequent to the third quarter, we announced the successful completion of the refinancing of our existing debt plus raising an incremental $125 million. This allowed us to reprice our existing borrowings, saving fifty basis points, while raising incremental monies to help drive anticipated acquisition growth while maintaining liquidity and flexibility. We expect to finish fiscal year 2023 strong with momentum continuing into fiscal year 2024.”
Conference Call Information
DXP Enterprises, Inc. management will host a conference call, November 9, 2023, at 10:00 a.m. Central Time, to discuss the Company’s financial results. The conference call may be accessed by going to https://ir.dxpe.com.
Interested investors and other parties can listen to a webcast of the live conference call by logging onto the Investor Relations section of the Company’s website at https://ir.dxpe.com. The online replay will be available on the same website immediately following the call. A slide presentation highlighting the Company’s results and key performance indicators will also be available on the Investor Relations section of the Company’s website.
To learn more about DXP Enterprises, Inc., please visit the Company’s website at https://ir.dxpe.com
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 North America 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.
Non-GAAP Financial Measures
DXP supplements reporting of net income with certain non-GAAP measurements, including EBITDA, Adjusted EBITDA, EBITDA Margin, Adjusted EBITDA Margin, Free Cash Flow, 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, EBITDA Margin, Adjusted EBITDA Margin, Free Cash Flow and net debt 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 to its most directly comparable GAAP financial measure, 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 shares of the Company’s common stock, and for certain other activities.
Information Related to Forward-Looking Statements
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: the effectiveness of management’s strategies and decisions; our ability to implement our internal growth and acquisition growth strategies; general economic and business conditions specific to our primary customers; changes in government regulations; our ability to effectively integrate businesses we may acquire; new or modified statutory or regulatory requirements; availability of materials and labor; inability to obtain or delay in obtaining government or third-party approvals and permits; non-performance by third parties of their contractual obligations; unforeseen hazards such as weather conditions, acts of war or terrorist acts and the governmental or military response thereto; cyber-attacks adversely affecting our operations; other geological, operating and economic considerations and declining prices and market conditions, including reduced oil and natural gas prices and supply or demand for maintenance, repair and operating products, equipment and service; decreases in oil and natural gas industry capital 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. 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 Securities and Exchange Commission, 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 SUBSIDIARIESUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS($ thousands) | ||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||
| Sales | $ | 419,249 | $ | 387,314 | $ | 1,271,556 | $ | 1,074,537 | ||||||
| Cost of sales | 293,687 | 275,681 | 889,101 | 763,758 | ||||||||||
| Gross profit | 125,562 | 111,633 | 382,455 | 310,779 | ||||||||||
| Selling, general and administrative expenses | 89,706 | 85,094 | 273,720 | 236,761 | ||||||||||
| Income from operations | 35,856 | 26,539 | 108,735 | 74,018 | ||||||||||
| Other expense, net | 1,234 | 1,565 | 522 | 2,941 | ||||||||||
| Interest expense | 12,684 | 6,833 | 36,068 | 17,610 | ||||||||||
| Income before income taxes | 21,938 | 18,141 | 72,145 | 53,467 | ||||||||||
| Provision for income taxes | 5,766 | 5,097 | 19,339 | 13,402 | ||||||||||
| Net income | 16,172 | 13,044 | 52,806 | 40,065 | ||||||||||
| Net loss attributable to NCI* | — | (885 | ) | — | (938 | ) | ||||||||
| Net income attributable to DXP Enterprises, Inc. | 16,172 | 13,929 | 52,806 | 41,003 | ||||||||||
| Preferred stock dividend | 22 | 22 | 67 | 67 | ||||||||||
| Net income attributable to common shareholders | $ | 16,150 | $ | 13,907 | $ | 52,739 | $ | 40,936 | ||||||
| Diluted earnings per share attributable to DXP Enterprises, Inc. | $ | 0.93 | $ | 0.71 | $ | 2.94 | $ | 2.10 | ||||||
| Weighted average common shares and common equivalent shares outstanding | 17,356 | 19,660 | 17,944 | 19,552 | ||||||||||
| *NCI represents non-controlling interest | ||||||||||||||
| DXP ENTERPRISES, INC. AND SUBSIDIARIESUNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS($ thousands) | ||||||
| September 30, 2023 | December 31, 2022 | |||||
| ASSETS | ||||||
| Current assets: | ||||||
| Cash | $ | 27,176 | $ | 46,026 | ||
| Restricted cash | 91 | 91 | ||||
| Accounts receivable, net of allowances for doubtful accounts | 320,972 | 320,880 | ||||
| Inventories | 105,145 | 101,392 | ||||
| Costs and estimated profits in excess of billings | 47,211 | 23,588 | ||||
| Prepaid expenses and other current assets | 15,799 | 21,644 | ||||
| Income taxes receivable | 393 | 2,493 | ||||
| Total current assets | $ | 516,787 | $ | 516,114 | ||
| Property and equipment, net | 56,277 | 45,964 | ||||
| Goodwill | 342,122 | 333,759 | ||||
| Other intangible assets, net of accumulated amortization | 67,913 | 79,585 | ||||
| Operating lease right-of-use assets, net | 48,462 | 57,402 | ||||
| Other long-term assets | 13,543 | 4,456 | ||||
| Total assets | $ | 1,045,104 | $ | 1,037,280 | ||
| LIABILITIES AND EQUITY | ||||||
| Current liabilities: | ||||||
| Current maturities of debt | $ | 4,369 | $ | 4,369 | ||
| Trade accounts payable | 101,439 | 100,784 | ||||
| Accrued wages and benefits | 35,540 | 26,260 | ||||
| Customer advances | 12,595 | 20,128 | ||||
| Billings in excess of costs and estimated profits | 7,181 | 10,411 | ||||
| Current-portion operating lease liabilities | 15,459 | 18,083 | ||||
| Other current liabilities | 45,275 | 32,866 | ||||
| Total current liabilities | $ | 221,858 | $ | 212,901 | ||
| Long-term debt, less unamortized debt issuance costs | 408,105 | 409,205 | ||||
| Long-term operating lease liabilities | 34,028 | 40,189 | ||||
| Other long-term liabilities | 15,469 | 4,701 | ||||
| Deferred income taxes | 2,068 | 4,892 | ||||
| Total long-term liabilities | $ | 459,670 | $ | 458,987 | ||
| Total Liabilities | $ | 681,528 | $ | 671,888 | ||
| Equity: | ||||||
| Total DXP Enterprises, Inc. equity | 363,576 | 365,392 | ||||
| Total liabilities and equity | $ | 1,045,104 | $ | 1,037,280 | ||
Business segment financial highlights:
- Service Centers’ revenue for the third quarter was $294.5 million, a 1.3 percent sequential decrease and an increase of 13.2 percent year-over-year with a 14.1 percent operating income margin and a revenue increase of 21.7 percent for the nine months ended September 30, 2023 compared to the same period in 2022.
- Innovative Pumping Solutions’ revenue for the third quarter was $59.0 million, a sequential decrease of 7.1 percent and a decrease of 0.1 percent year-over-year with a 18.9 percent operating income margin and a revenue increase of 8.5 percent for the nine months ended September 30, 2023 compared to the same period in 2022.
- Supply Chain Services’ revenue for the third quarter was $65.8 million, a 0.5 percent sequential decrease and a decrease of 3.5 percent year-over-year with a 8.5 percent operating income margin and a revenue increase of 14.0 percent for the nine months ended September 30, 2023 compared to the same period in 2022.
| SEGMENT DATA($ thousands, unaudited) | |||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
| Sales | 2023 | 2022 | 2023 | 2022 | |||||||
| Service Centers | $ | 294,458 | $ | 260,083 | $ | 888,116 | $ | 729,977 | |||
| Innovative Pumping Solutions | 58,963 | 59,044 | 184,402 | 169,890 | |||||||
| Supply Chain Services | 65,828 | 68,187 | 199,038 | 174,670 | |||||||
| Total Sales | $ | 419,249 | $ | 387,314 | $ | 1,271,556 | $ | 1,074,537 | |||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
| Operating Income | 2023 | 2022 | 2023 | 2022 | |||||||
| Service Centers | $ | 41,441 | $ | 35,718 | $ | 130,274 | $ | 95,437 | |||
| Innovative Pumping Solutions | 11,155 | 7,327 | 31,638 | 23,122 | |||||||
| Supply Chain Services | 5,593 | 5,332 | 16,522 | 14,311 | |||||||
| Total Segments operating income | $ | 58,189 | $ | 48,377 | $ | 178,434 | $ | 132,870 | |||
| Reconciliation of Operating Income for Reportable Segments($ thousands, unaudited) | |||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||
| Income from operations for reportable segments | $ | 58,189 | $ | 48,377 | $ | 178,434 | $ | 132,870 | |||
| Adjustment for: | |||||||||||
| Amortization of intangibles and fixed assets | 5,866 | 5,132 | 15,206 | 13,958 | |||||||
| Corporate expenses | 16,467 | 16,706 | 54,493 | 44,894 | |||||||
| Income from operations | $ | 35,856 | $ | 26,539 | $ | 108,735 | $ | 74,018 | |||
| Interest expense | 12,684 | 6,833 | 36,068 | 17,610 | |||||||
| Other (income) expense, net | 1,234 | 1,565 | 522 | 2,941 | |||||||
| Income before income taxes | $ | 21,938 | $ | 18,141 | $ | 72,145 | $ | 53,467 | |||
| Unaudited Reconciliation of Non-GAAP Financial Information($ thousands) | |||||||||||||||
| The following table sets forth the reconciliation of EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin to the most comparable U.S. GAAP financial measure (in thousands): | |||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Net income attributable to DXP Enterprises, Inc. | $ | 16,172 | $ | 13,929 | $ | 52,806 | $ | 41,003 | |||||||
| Less: Net loss attributable to non-controlling interest | — | (885 | ) | — | (938 | ) | |||||||||
| Plus: Interest expense | 12,684 | 6,833 | 36,068 | 17,610 | |||||||||||
| Plus: Provision for income taxes | 5,766 | 5,097 | 19,339 | 13,402 | |||||||||||
| Plus: Depreciation and amortization | 7,983 | 7,493 | 21,468 | 21,325 | |||||||||||
| EBITDA | $ | 42,605 | $ | 32,467 | $ | 129,681 | $ | 92,402 | |||||||
| Plus: NCI income (loss) before tax(1) | — | 159 | — | 433 | |||||||||||
| Plus: other non-recurring items(2) | 551 | 1,193 | 551 | 1,193 | |||||||||||
| Plus: stock compensation expense | 864 | 505 | 2,211 | 1,368 | |||||||||||
| Adjusted EBITDA | $ | 44,020 | $ | 34,324 | $ | 132,443 | $ | 95,396 | |||||||
| Operating Income Margin | 8.6 | % | 6.9 | % | 8.6 | % | 6.9 | % | |||||||
| EBITDA Margin | 10.2 | % | 8.4 | % | 10.2 | % | 8.6 | % | |||||||
| Adjusted EBITDA Margin | 10.5 | % | 8.9 | % | 10.4 | % | 8.9 | % | |||||||
| (1) NCI represents non-controlling interest. | |||||||||||||||
| (2) Other non-recurring items includes the loss associated with closing an international location for the three and nine months ended September 30, 2023 and the loss associated with the sale of a VIE for the three and nine months ended September 30, 2022. | |||||||||||||||
| Unaudited Reconciliation of Non-GAAP Financial Information($ thousands) | ||||||||||||||||
| The following table sets forth the reconciliation of Free Cash Flow to the most comparable GAAP financial measure (in thousands): | ||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net cash from operating activities | $ | 39,758 | $ | (3,432 | ) | $ | 63,775 | $ | 2,256 | |||||||
| Less: purchases of property and equipment | (1,486 | ) | (1,578 | ) | (7,103 | ) | (3,426 | ) | ||||||||
| Free Cash Flow | $ | 38,272 | $ | (5,010 | ) | $ | 56,672 | $ | (1,170 | ) | ||||||
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