8-K
DXP ENTERPRISES INC (DXPE)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): April 14, 2023
Commission file number 0-21513
DXP Enterprises, Inc.
(Exact name of registrant as specified in its charter)
| Texas | 76-0509661 |
|---|---|
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
5301 Hollister, Houston, Texas 77040 (713) 996-4700
| (Address of principal executive offices) | (Registrant’s telephone number, including area code) |
|---|
_________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of Each Class | Trading Symbol | Name of Exchange on which Registered |
|---|---|---|
| Common Stock par value $0.01 | DXPE | NASDAQ Global Select Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ⃞
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following information is furnished pursuant to Regulation FD.
On April 14, 2023, DXP Enterprises, Inc., issued a press release announcing financial results for the fourth quarter ended December 31, 2022. A copy of the release is furnished herewith as Exhibit 99.1, and incorporated herein by reference. Such exhibit (i) is furnished pursuant to Item 2.02 of Form 8-K, (ii) is not to be considered "filed" under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and (iii) shall not be incorporated by reference into any previous or future filings made by or to be made by the Company with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(d) Exhibits.
99.1 Press Release dated April 14, 2023 announcing the earnings results for the fourth quarter ended December 31, 2022.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| DXP ENTERPRISES, INC. | |
|---|---|
| (Registrant) | |
| By: | /s/ Kent Yee |
| Kent Yee | |
| Senior Vice President/Finance and Chief Financial Officer | |
| Dated: | April 14, 2023 |
INDEX TO EXHIBITS
Introductory Note: The following exhibit is furnished pursuant to Item 2.02 of Form 8-K and is not to be considered “filed” under the Exchange Act and shall not be incorporated by reference into any of the Company’s previous or future filings under the Securities Act or the Exchange Act.
Document
| NEWS RELEASE<br><br>CONTACT: Kent Yee<br><br>Senior Vice President, CFO<br><br>www.dxpe.com<br><br>THE INDUSTRIAL DISTRIBUTION EXPERTS |
|---|
DXP ENTERPRISES REPORTS FOURTH QUARTER AND FISCAL 2022 RESULTS
•Fiscal 2022 sales of $1.5 billion, up 32.9 percent from fiscal 2021
•Solid full Year GAAP diluted EPS of $2.47
•$126.8 million in earnings before interest, taxes, depreciation, amortization and other non-cash charges ("Adjusted EBITDA")
•Net income of $48.2 million versus $16.5 million in fiscal 2021
•Raised an incremental $105 million in Senior Secured Term Loan B financing
•Repurchased 1.3 million shares for $35.2 million in fiscal 2022
•$46.1 million in cash and restricted cash
•Closed four acquisitions during the fiscal year - Burlingame, Drydon, Cisco, and Sullivan
Houston, TX – April 14, 2023 – DXP Enterprises, Inc. (NASDAQ: DXPE) today announced financial results for the fourth quarter and fiscal year ended December 31, 2022. The following are results for the three and twelve months ended December 31, 2022, compared to the three and twelve months ended December 31, 2021. A reconciliation of the non-GAAP financial measures can be found in the back of this press release.
Fourth Quarter 2022 financial highlights:
•Sales grew 38.6 percent to $406.3 million, compared to $293.1 million for the fourth quarter of 2021.
•Earnings per diluted share for the fourth quarter was $0.37 based upon 19.3 million diluted shares, compared to $0.05 per share in the fourth quarter of 2021, based on 19.6 million diluted shares. Excluding one-time cash charges associated with raising the incremental Term Loan B financing of $2.0 million, earnings per diluted share was $0.50 per share.
•Adjusted earnings before interest, taxes, depreciation and amortization and other non-cash charges (Adjusted EBITDA) for the fourth quarter of 2022 was $31.6 million compared to $14.8 million for the fourth quarter of 2021. Adjusted EBITDA as a percentage of sales was 7.8 percent and 5.0 percent, respectively.
Fiscal Year 2022 financial highlights:
•Sales increased 32.9 percent to $1.5 billion, compared to $1.1 billion for 2021.
• Earnings per diluted share for 2022 was $2.47 based upon 19.5 million diluted shares, compared to $0.83 per share in 2021, based on 19.8 million basic shares. Excluding one-time charges totaling $3.3 million associated with amending and extending the ABL Revolver and raising the incremental Senior Secured Term Loan B financing and other one-time non-cash charges, earnings per diluted share was $2.69 per share.
• Net income for the year increased $31.7 million to $48.1 million, compared to $16.4 million for fiscal 2021.
• Adjusted EBITDA for 2022 was $126.8 million compared to $70.2 million for 2021. Adjusted EBITDA as a percentage of sales was 8.6 percent and 6.3 percent, respectively.
David R. Little, Chairman and CEO commented, "Fiscal 2022 was another great year for DXP. DXPeople drove fourth quarter results well above expectations, with strong performance across all business segments. Broad based business strength across the business helped us deliver 33% revenue growth on a year-over-year basis. Consistent and resilient demand, along with price impacts delivered robust revenue growth in the fourth quarter on a sales per business day basis and throughout fiscal 2022. This growth has fueled a healthy momentum coming into 2023. DXP’s Innovative Pumping Solutions sales were up 65.6 percent to $231.1 million, followed by Supply Chain Services sales growing 52.3 percent at $240.4 million and Service Centers sales growing 23.6 percent to $1.0 billion. Congratulations to all of our DXPeople for their hard work and efforts to serve our customers given the headwinds of supply chain issues, supplier increases, and employee turnover."
Mr. Little continued, "The sales momentum from the fourth quarter accompanied by our backlogs has positioned us for further success as we move into 2023. Additionally, we strengthened our balance sheet in the fourth quarter, raising an incremental $105 million under our Term Loan B. The strength of the balance sheet, the balanced end markets that we have delivered upon, and our ability to continue to execute on acquisitions have set the stage for 2023. We see positive dynamics in our traditional end markets like oil & gas, as well as positive outlooks for end markets like water & wastewater. We are confident our growth strategy, coupled with a continued focus on improving margins and maintaining operational discipline will drive shareholder value."
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| NEWS RELEASE<br><br>CONTACT: Kent Yee<br><br>Senior Vice President, CFO<br><br>www.dxpe.com<br><br>THE INDUSTRIAL DISTRIBUTION EXPERTS |
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Kent Yee, CFO commented, "Fiscal 2022 financial performance reflects the execution of our end market diversification efforts, our plans to grow both organically and through acquisitions, and continuous improvement in our operations and efficiency. Total sales and adjusted EBITDA grew 32.9 percent and 80.6 percent, respectively. We delivered strong sales growth, operating margin expansion, and thus, operating leverage of 2.4x. Our fiscal 2022 diluted earnings per share was $2.47. We are pleased with the fourth quarter, and year-end results. We positioned our balance sheet in the fourth quarter to support our growth plans in 2023. DXP ended the year with $46.1 million in cash on the balance sheet and net debt of $382.1 million. DXP’s secured leverage ratio or net debt to EBITDA was 2.8:1.0 with a covenant EBITDA of $135.1 million for fiscal 2022. We continue to have momentum going into fiscal 2023 and we expect to drive both organic and acquisition driven growth while driving shareholder and stakeholder value."
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, 2022, was $382.1 million compared to $277.7 million at December 31, 2021. As of December 31, 2022, DXP has approximately $178.4 million in liquidity, consisting of $46.0 million in cash on hand and approximately $132.4 million in availability under our ABL facility.
Management Commentary
"During the fourth quarter of fiscal 2022, we delivered solid results despite the market volatility. We achieved yet another quarter of year-over-year net sales and earnings growth in addition to delivering consolidated Adj. EBITDA margins of 7.8 percent. Our fourth quarter was the strongest fourth quarter performance in the Company's history. These results demonstrate strong operational execution and the resiliency of our business model, which enables DXP to perform across the economic cycle," said David Little, Chief Executive Officer.
"As an enterprise, our performance continues to match our strategic focus of core improvement and continues to outperform expectations. Our record fiscal year operating results demonstrates our ability to execute on our goals. Supply Chain Services had a record year, at $240.4 million, catapulted by the addition of a large diversified chemical customer that we are excited to have on board. We look forward to finding similar opportunities going forward and organically growing our Supply Chain business with new customer wins and establishing new sales highs. Innovative Pumping Solutions experienced meaningful growth within our heritage 529 energy fabrication business, which is already off to a great start in 2023, along with significant growth from our recent water acquisitions which continue to perform well for DXP. Also, Service Centers had a record year at $1.0 billion in sales, driven by strong price and good demand dynamics in a variety of end markets including chemicals, manufacturing, water & wastewater and energy as well as the addition of our recent air compressor acquisitions and the overall performance of acquisitions that we have made within Service Centers since fiscal 2020," continued Little.
"Our balance sheet remains in excellent condition, as we ended the year with total liquidity of $178.4 million, including cash and cash equivalents of $46.1 million and $132.4 million available under our ABL. We believe our strong liquidity and strong counter cyclical cash generation profile will allow us to operate from a position of financial strength going forward as we continue to navigate near-term market dynamics. Sales per business day, as a broad KPI improved from the third quarter going from $6.0 million per day to $6.6 million per day or an improvement of 8.3 percent. Year-over-year, we grew sales per business day 36 percent." added Kent Yee, Senior Vice President and Chief Financial Officer.
Outlook
"As we enter our fiscal 2023, there remains a level of volatility and uncertainty that appears to be leveling as we progress through the early parts of fiscal 2023. We have high confidence in our operating teams, flexible business model and execution strategy. Our first few months fiscal 2023 performance reinforces our discipline to remain focused on what we can control. Estimated sales per business day in January and February were $5.7 million and $5.9 million per day, respectively. Looking ahead, we intend to maintain that same discipline to navigate the current environment while positioning DXP to be an even stronger company through investments to automate and modernize the business as we continue to grow organically and through acquisitions," added David Little Chief Executive Officer.
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| NEWS RELEASE<br><br>CONTACT: Kent Yee<br><br>Senior Vice President, CFO<br><br>www.dxpe.com<br><br>THE INDUSTRIAL DISTRIBUTION EXPERTS |
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2022 Sales Per Business Day Reconciliation
($ thousands, except Business days, unaudited)
| Q1 | Q2 | Q3 | Q4 | |
|---|---|---|---|---|
| Total Sales | $319,411 | $367,812 | $387,314 | $406,295 |
| Business Days | 64 | 63 | 64 | 62 |
| Sales Per Business Day | $4,991 | $5,838 | $6,052 | $6,553 |
Earnings Call Update
DXP will not host a conference call regarding December 31, 2022 fourth quarter and fiscal 2022 results but rather will provide this enhanced press release and supplemental earnings release materials including a comprehensive question and answer document. The online materials will be available at ir.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.
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. 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.
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| NEWS RELEASE<br><br>CONTACT: Kent Yee<br><br>Senior Vice President, CFO<br><br>www.dxpe.com<br><br>THE INDUSTRIAL DISTRIBUTION EXPERTS | |||||||
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| DXP ENTERPRISES, INC. AND SUBSIDIARIESUNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS( thousands, except per share amounts) | |||||||
| --- | --- | --- | --- | --- | --- | --- | --- |
| Twelve Months Ended December 31, | |||||||
| 2021 | 2022 | 2021 | |||||
| Sales | 406,295 | $ | 293,149 | $ | 1,480,832 | $ | 1,113,921 |
| Cost of sales | 208,494 | 1,058,794 | 785,415 | ||||
| Gross profit | 84,655 | 422,038 | 328,506 | ||||
| Selling, general and administrative expenses | 77,062 | 324,286 | 288,649 | ||||
| Impairments and other charges | — | — | — | ||||
| Operating income | 7,593 | 97,752 | 39,857 | ||||
| Other (income) expense, net | 570 | 2,716 | (414) | ||||
| Interest expense | 5,245 | 29,135 | 21,089 | ||||
| Income before income taxes | 1,778 | 65,901 | 19,182 | ||||
| Provision for income taxes | 1,051 | 17,799 | 3,431 | ||||
| Net income | 727 | 48,102 | 15,751 | ||||
| Net income (loss) attributable to NCI* | (155) | (53) | (745) | ||||
| Net income attributable to DXP Enterprises, Inc. | 882 | 48,155 | 16,496 | ||||
| Preferred stock dividend | 22 | 90 | 90 | ||||
| Net income attributable to common shareholders | 7,131 | $ | 860 | $ | 48,065 | $ | 16,406 |
| Diluted earnings per share attributable to DXP Enterprises, Inc. | 0.37 | $ | 0.05 | $ | 2.47 | $ | 0.83 |
| Weighted average common shares and common equivalent shares outstanding | 19,579 | 19,471 | 19,789 | ||||
| *NCI represents non-controlling interest |
All values are in US Dollars.
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| NEWS RELEASE<br><br>CONTACT: Kent Yee<br><br>Senior Vice President, CFO<br><br>www.dxpe.com<br><br>THE INDUSTRIAL DISTRIBUTION EXPERTS |
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Business segment financial highlights:
•Service Centers’ revenue for the fiscal year was $1.0 billion, an increase of 23.6 percent year-over-year with a 12.6 percent operating income margin.
◦Revenue for the fourth quarter was $279.4 million, an increase of 34.3 percent year-over-year with a 11.4 percent operating income margin.
•Innovative Pumping Solutions’ revenue for the fiscal year was $231.1 million, an increase of 65.6 percent year over year with an 13.0 percent operating income margin.
◦Revenue for the fourth quarter was $61.2 million, an increase of 41.8 percent year-over-year with an operating income margin of 11.3 percent.
•Supply Chain Services’ revenue for the fiscal year was $240.4 million, an increase of 52.3 percent year-over-year with a 8.1 percent operating margin.
◦Revenue for the fourth quarter was $65.7 million, an increase of 56.4 percent year-over-year with a 7.9 percent operating income margin.
SEGMENT DATA
($ thousands, unaudited)
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| Sales | 2022 | 2021 | 2022 | 2021 | ||||
| Service Centers | $ | 279,378 | $ | 207,955 | $ | 1,009,356 | $ | 816,496 |
| Innovative Pumping Solutions | 61,212 | 43,179 | 231,102 | 139,591 | ||||
| Supply Chain Services | 65,704 | 42,015 | 240,374 | 157,834 | ||||
| Total DXP Sales | $ | 406,294 | $ | 293,149 | $ | 1,480,832 | $ | 1,113,921 |
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||
| Operating Income | 2022 | 2021 | 2022 | 2021 | ||||
| Service Centers | $ | 31,737 | $ | 21,679 | $ | 127,174 | $ | 98,931 |
| Innovative Pumping Solutions | 6,914 | 6,043 | 30,036 | 12,070 | ||||
| Supply Chain Services | 5,220 | 2,787 | 19,530 | 11,963 | ||||
| Total segment operating income | $ | 43,871 | $ | 30,509 | $ | 176,740 | $ | 122,964 |
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| NEWS RELEASE<br><br>CONTACT: Kent Yee<br><br>Senior Vice President, CFO<br><br>www.dxpe.com<br><br>THE INDUSTRIAL DISTRIBUTION EXPERTS |
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Reconciliation of Operating Income for Reportable Segments
($ thousands, unaudited)
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||
| Operating income for reportable segments | $ | 43,871 | $ | 30,509 | $ | 176,741 | $ | 122,964 |
| Adjustment for: | ||||||||
| Impairments and other charges | — | — | — | — | ||||
| Amortization of intangibles | 4,957 | 4,507 | 18,915 | 17,197 | ||||
| Corporate expenses | 15,180 | 18,409 | 60,074 | 65,910 | ||||
| Total operating income | $ | 23,734 | $ | 7,593 | $ | 97,752 | $ | 39,857 |
| Interest and other financing expenses | 11,525 | 5,245 | 29,135 | 21,089 | ||||
| Other (income) expense, net | (227) | 570 | 2,716 | (414) | ||||
| Income before income taxes | $ | 12,436 | $ | 1,778 | $ | 65,901 | $ | 19,182 |
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 (loss) before income taxes, calculated and reported in accordance with U.S. GAAP.
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||
| Income before income taxes | 12,436 | 1,778 | $ | 65,901 | $ | 19,182 | ||
| Plus: interest and other financing expenses | 11,525 | 5,245 | 29,135 | 21,089 | ||||
| Plus: depreciation and amortization | 7,175 | 7,073 | 28,500 | 27,143 | ||||
| EBITDA | $ | 31,136 | $ | 14,096 | $ | 123,536 | $ | 67,414 |
| Plus: NCI loss income before tax* | — | 206 | 227 | 993 | ||||
| Plus: One-time non-cash loss | — | — | 1,193 | — | ||||
| Plus: stock compensation expense | 482 | 469 | 1,850 | 1,823 | ||||
| Adjusted EBITDA | $ | 31,618 | $ | 14,771 | $ | 126,806 | $ | 70,230 |
| * NCI represents non-controlling interest |
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| NEWS RELEASE<br><br>CONTACT: Kent Yee<br><br>Senior Vice President, CFO<br><br>www.dxpe.com<br><br>THE INDUSTRIAL DISTRIBUTION EXPERTS |
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DXP ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
($ thousands, except per share amounts)
| December 31, 2022 | December 31, 2021 | |||
|---|---|---|---|---|
| ASSETS | ||||
| Current assets: | ||||
| Cash | $ | 46,026 | $ | 48,989 |
| Restricted cash | 91 | 91 | ||
| Accounts receivable, net of allowances for doubtful accounts | 320,880 | 218,137 | ||
| Inventories | 101,392 | 100,894 | ||
| Costs and estimated profits in excess of billings | 23,588 | 17,193 | ||
| Prepaid expenses and other current assets | 21,644 | 9,522 | ||
| Federal income taxes receivable | 2,493 | 9,748 | ||
| Total current assets | $ | 516,114 | $ | 404,574 |
| Property and equipment, net | 45,964 | 51,880 | ||
| Goodwill | 333,759 | 296,541 | ||
| Other intangible assets, net of accumulated amortization | 79,585 | 79,205 | ||
| Operating lease right-of-use assets | 57,402 | 57,221 | ||
| Other long-term assets | 4,456 | 4,806 | ||
| Total assets | $ | 1,037,280 | $ | 894,227 |
| LIABILITIES AND EQUITY | ||||
| Current liabilities: | ||||
| Current maturities of long-term debt | $ | 4,369 | $ | 3,300 |
| Trade accounts payable | 100,784 | 77,842 | ||
| Accrued wages and benefits | 26,260 | 23,006 | ||
| Customer advances | 20,128 | 12,924 | ||
| Billings in excess of costs and estimated profits | 10,411 | 3,581 | ||
| Current-portion operating lease liabilities | 18,083 | 18,203 | ||
| Other current liabilities | 32,866 | 42,206 | ||
| Total current liabilities | $ | 212,901 | $ | 181,062 |
| Long-term debt, less unamortized debt issuance costs | 409,205 | 315,397 | ||
| Long-term operating lease liabilities | 40,189 | 39,922 | ||
| Other long-term liabilities | 4,701 | 3,603 | ||
| Deferred income taxes | 4,892 | 7,516 | ||
| Total long-term liabilities | $ | 458,987 | $ | 366,438 |
| Total Liabilities | $ | 671,888 | $ | 547,500 |
| Equity: | ||||
| Total DXP Enterprises, Inc. equity | 365,392 | 346,674 | ||
| Non-controlling interest | $ | — | 53 | |
| Total Equity | $ | 365,392 | $ | 346,727 |
| Total liabilities and equity | $ | 1,037,280 | $ | 894,227 |
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| NEWS RELEASE<br><br>CONTACT: Kent Yee<br><br>Senior Vice President, CFO<br><br>www.dxpe.com<br><br>THE INDUSTRIAL DISTRIBUTION EXPERTS |
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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, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||
| Net cash from operating activities | $ | 3,638 | $ | 14,258 | $ | 5,894 | $ | 37,089 |
| Less: purchases of property and equipment | (1,490) | (3,015) | (4,916) | (5,999) | ||||
| Plus: proceeds from sales of property and equipment | — | 372 | — | 1,669 | ||||
| Free cash flow | $ | 2,148 | $ | 11,615 | $ | 978 | $ | 32,759 |
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, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||
| GAAP Net Income: | $ | 7,154 | $ | 882 | $ | 48,155 | $ | 16,496 |
| One-time non-cash loss | — | — | 1,193 | — | ||||
| One-time debt financing costs | 1,972 | — | 2,103 | — | ||||
| Adjustment for taxes* | 533 | — | 890 | — | ||||
| Non-GAAP net income | $ | 9,659 | $ | 882 | $ | 52,341 | $ | 16,496 |
| Weighted average common shares and common equivalent shares outstanding | ||||||||
| Basic | 18,422 | 18,739 | 18,631 | 18,949 | ||||
| Diluted | 19,262 | 19,579 | 19,471 | 19,789 | ||||
| Diluted earnings per share: | ||||||||
| GAAP | $ | 0.37 | $ | 0.05 | $ | 2.47 | $ | 0.83 |
| Non-GAAP | $ | 0.50 | $ | 0.05 | $ | 2.69 | $ | 0.83 |
| * 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. The year-to-date effective tax rate of 27.0 percent was applied to the one-time charges associated with the disposal of DXP's variable interest entity and one-time debt financing costs. |
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q4-2022earningsslides
Results for Q4 Fiscal 2022 Earnings Announcement: April 14, 2023 (Quarter Ending December 31, 2022) Presented by: David Little Chairman, President & CEO Kent Yee Senior Vice President & CFO
FORWARD LOOKING STATEMENTS This presentation contains forward-looking statements within the meaning of the U.S. federal securities laws that involve risks and uncertainties. Certain statements contained in this report are not purely historical, including statements regarding our expectations, beliefs, intentions or strategies regarding the future that are forward-looking. These statements include statements concerning projected revenues, expenses, gross profit, income, gross margins or other financial items. All forward-looking statements speak only as of the date of this presentation. You should not place undue reliance on these forward-looking statements. Although we believe our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this presentation are reasonable, we may be unable to achieve these plans, intentions or expectations. These cautionary statements qualify all forward- looking statements attributable to us or persons acting on our behalf. Risks and uncertainties that could cause actual results to differ from those in the forward-looking statements are described in “Risk Factors” and “Forward-Looking Statements” in our Quarterly Reports on Form 10-Q and in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission. Statement Regarding use of Non-GAAP Measures: The Non-GAAP financial measures contained in this presentation (including, without limitation, EBITDA, Adjusted EBITDA, Free Cash Flow, Return on Invested Capital (ROIC) and variations thereof are not measures of financial performance calculated in accordance with GAAP and should not be considered as alternatives to net income (loss) or any other performance measure derived in accordance with GAAP or as alternatives to cash flows from operating activities as a measure of our liquidity. They should be viewed in addition to, and not as a substitute for, analysis of our results reported in accordance with GAAP, or as alternative measures of liquidity. Management believes that certain non-GAAP financial measures provide a view to measures similar to those used in evaluating our compliance with certain financial covenants under our credit facilities and provide financial statement users meaningful comparisons between current and prior year period results. They are also used as a metric to determine certain components of performance-based compensation. The adjustments and Adjusted EBITDA are based on currently available information and certain adjustments that we believe are reasonable and are presented as an aid in understanding our operating results. They are not necessarily indicative of future results of operations that may be obtained by the Company. 2
Please refer to the appendix of this presentation for current period reconciliation of the Non-GAAP financial measures to the most directly comparable GAAP measures. Q4 INCOME STATEMENT HIGHLIGHTS 3 ($ thousands) Prior Yr Qtr Prior Qtr Current Qtr Prior Yr Current Yr Dec 31, 2021 Sep 30, 2022 Dec 31, 2022 Dec 31, 2021 Dec 31, 2022 Sales 293,149$ 387,314$ 406,295$ 1,113,921$ 1,480,832$ % growth - seq. 1.3% 5.3% 4.9% % growth - yoy 26.0% 33.8% 38.6% 10.8% 32.9% Gross Profit 84,655 111,633 111,259 328,506 422,038 % margin 28.9% 28.8% 27.4% 29.5% 28.5% Operating Income 7,593 26,539 23,734 39,857 97,752 % margin 2.6% 6.9% 5.8% 3.6% 6.6% Adj. EBITDA, as reported 14,771 34,321 31,618 70,231 126,805 % margin 5.0% 8.9% 7.8% 6.3% 8.6% Diluted EPS 0.05$ 0.71$ 0.37$ 0.83$ 2.47$ Avg. Daily Sales: 4,806$ 6,052$ 6,553$ 4,438$ 5,853$
0.19 0.02 0.41 0.36 0.05 0.65 0.74 0.75 0.37 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 Diluted Earnings Per Share ($ actuals) QUARTERLY FINANCIAL HIGHLIGHTS 233 246 286 289 293 319 368 387 40627.6% 29.2% 29.9% 30.0% 28.9% 29.7% 28.4% 28.8% 27.4% 15.0% 17.0% 19.0% 21.0% 23.0% 25.0% 27.0% 29.0% 31.0% Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 0 50 100 150 200 250 300 350 400 450 Sales and Gross Margin ($ millions) 13 14 23 19 15 28 33 34 32 5.5% 5.7% 7.9% 6.5% 5.0% 8.9% 8.9% 8.9% 7.8% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 0 5 10 15 20 25 30 35 40 EBITDA and EBITDA Margin ($ millions) 16% 17% 21% 23% 22% 24% 24% 25% 32% Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 0% 5% 10% 15% 20% 25% 30% 35% Return on Invested Capital ROIC% 4 Return on invested capital is defined as tax-effected LTM EBITDA / average total net operating assets. *Sep-20 and Dec-20 diluted earnings per share is adjusted for the impact of $48.4 million and $11.5 million in goodwill and other related impairments as well as the normalization of tax rates see appendix for reconciliation. Sep-22 diluted earnings per share is adjusted for the impact of a one-time non-cash loss on the sale of an asset.
Q4 OPERATING PERFORMANCE BY SEGMENT 5 ($ millions) *Corporate expense includes amortization of intangible assets. Please refer to the appendix of this presentation for current period reconciliation of the Non-GAAP financial measures to the most directly comparable GAAP measures. Sales $ Corporate* OP$ OP% $ 279.4 $ 61.2 $ 65.7 --- $ 31.7 $ 6.9 $ 5.2 $ (20.1) 11.4% 11.3% 7.9% Total DXP $ 406.3 $ 23.7 5.8% 11.4% 5.0 20.0 2.0 20.0 5.0 20.0 7.9% Sales Mix 69% 15% 16% 100% 11.3%
Net working capital is calculated as accounts receivable plus inventory plus cost & est. profits in excess of billings, plus prepaid expenses less accounts payable less accrued wages less billings in excess of costs and profits less customer advances less other accrued liabilities Free cash flow is calculated as cash from operations less net purchases of property & equipment CASH FLOW & WORKING CAPITAL 6 159 160 154 169 186 218 247 272 277 15.8% 16.8% 15.7%16.1%16.7% 18.4% 19.5%19.9% 18.7% 0.0% 5.0% 10.0% 15.0% 20.0% NET WORKING CAPITAL ($ millions) % of LTM sales Q4’22 Prior Qtr Current Qtr Current Yr Sep 30, 2022 Dec 31, 2022 Dec 31, 2022 GAAP net income 13,042$ 8,039$ 48,102$ Depreciation and amortization 7,493 7,175 28,500 Change in net working capital (20,466) (8,021) (69,046) Other operating cash flows, net (3,498) (3,554) (1,660) Net Cash provided by operating activities (3,429) 3,639 5,896 Purchase of property & equipment, net 1,578 1,490 4,916 Proceeds from sale of assets - - - Free Cash Flow (5,007) 2,149 980 Net Cash used in financing activities 6,271 26,019 44,312 Cash at end of the period 17,064 46,119 46,119 Supplemental Information: Purchase of businesses 4,389 - 48,506 Cash paid for income taxes 10,179 13,133 26,179 Cash paid for interest 6,392 9,068 25,321 Net Debt 347,859 382,107 382,107
APPENDIX
RECONCILIATION OF OPERATING INCOME ($ thousands) Three Months Ended December 31, Twelve Months Ended December 31, 2022 2021 2022 2021 Operating income for DXP segments $43,871 $30,509 $176,741 $122,964 Adjustments for: Impairment/other non-cash charges - - - - Amortization of intangibles 4,957 4,507 18,915 17,197 Corporate expenses 15,180 18,409 60,074 65,910 Total operating income $23,734 $7,593 $97,752 $39,857 Interest expense 11,525 5,245 29,135 21,089 Other expense (income), net (227) 570 2,717 (414) Income before income taxes $ 12,436 $ 1,778 $ 65,900 $ 19,183 8
RECONCILIATION OF NON-GAAP MEASURES: INCOME BEFORE INCOME TAXES TO EBITDA and ADJUSTED EBITDA ($ thousands) Three Months Ended December 31, Twelve Months Ended December 31, 2022 2021 2022 2021 Income before income taxes $ 12,436 $ 1,778 $ 65,900 $ 19,182 Plus: interest expense 11,525 5,245 29,135 21,089 Plus: depreciation and amortization 7,175 7,073 28,500 27,143 EBITDA $31,136 $14,096 $123,535 $67,414 Plus: NCI loss (gain) before tax _ 206 227 993 Plus: Impairment/other non- cash charges _ _ 1,193 _ Plus: Stock compensation expense 482 469 1,850 1,823 Adjusted EBITDA $31,618 $14,771 $126,805 $70,230 The following table is a reconciliation of EBITDA and adjusted EBITDA, non-GAAP financial measures, to income before income taxes, calculated and reported in accordance with U.S. GAAP. 9
NASDAQ: DXPE APRIL 2023 10
Document
FOURTH QUARTER AND FISCAL YEAR 2022
INVESTOR QUESTIONS & ANSWERS
April 12, 2023
Forward-Looking Statements
Reference is made to the forward-looking statements disclosure provided at the end of this document.
Executive Overview
Fiscal Fourth Quarter 2022 Highlights
•Sales grew 38.6 percent to $406.3 million, compared to $293.1 million for the fourth quarter of 2021.
•Earnings per diluted share for the fourth quarter was $0.37 based upon 19.3 million diluted shares, compared to $0.05 per share in the fourth quarter of 2021, based on 19.6 million diluted shares. Excluding one-time cash charges associated with raising the incremental Term Loan B financing of $2.0 million, earnings per diluted share was $0.50 per share.
•Adjusted earnings before interest, taxes, depreciation and amortization and other non-cash charges (Adjusted EBITDA) for the fourth quarter of 2022 was $31.6 million compared to $14.8 million for the fourth quarter of 2021. Adjusted EBITDA as a percentage of sales was 7.8 percent and 5.0 percent, respectively.
Fiscal Year 2022 Highlights
•Sales increased 32.9 percent to $1.5 billion, compared to $1.1 billion for 2021.
•Earnings per diluted share for 2022 was $2.47 based upon 19.5 million diluted shares, compared to $0.83 per share in 2021, based on 19.8 million basic shares. Excluding one-time charges of $3.3 million associated with amending and extending the ABL Revolver and raising the incremental Senior Secured Term Loan B financing, and other one-time non-cash charges, earnings per diluted share was $2.69 per share.
•Net income for the year increased $31.7 million to $48.2 million, compared to $16.4 million for fiscal 2021.
•Adjusted EBITDA for 2022 was $126.8 million compared to $70.2 million for 2021. Adjusted EBITDA as a percentage of sales was 8.6 percent and 6.3 percent, respectively.
Quick Reference to Contents
| Current Market Conditions | 2 |
|---|---|
| Q&A | 3 |
| Segment Data | 5 |
| Forward-Looking Statements | 6 |
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Current Market Conditions
•Macroeconomic factors
The extent of the impact of current macroeconomic factors on our business – including inflation, rising interest rates, and geopolitical events – remain uncertain and unpredictable. That said, inflation has been a general positive for the business through fiscal 2022 and during the early months of fiscal 2023. During fiscal year 2022, we experienced consistent demand across our business segments and in line with our industry. While near term demand will continue to be influenced by these factors, we remain optimistic about the long-term future growth of DXP and continue to believe that future demand will exceed historical, pre-pandemic levels.
•Sales per business day Trends
Sales per business day continued to progress throughout the fourth quarter growing from $5.9 million per day in October to $7.9 million per day in December. Average sales per business day for the fourth quarter were $6.6 million per day, compared to $6.1 million per day in the third quarter. Sale per business day in January and February were $5.7 million and $5.9 million per day, respectively. Note sales per business in December reflects year-end closing entries related to the FY2022 audit.
| ($thousands) | Q3 | Oct. | Nov. | Dec. | Q4 | Jan.-23 | Feb.- 23 |
|---|---|---|---|---|---|---|---|
| Business Days | 64 | 21 | 20 | 20 | 61 | 21 | 20 |
| Sales per business day | 6,052 | 5,884 | 6,152 | 7,984 | 6,553 | 5,670 | 5,930 |
•IPS Order backlogs.
Total IPS backlog at the end of fiscal year 2022 was $108.5 million. This compares to $96.9 million as of December 31, 2021, and $46.6 million as of December 31, 2020.
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Q&A
1.Oil and gas customers. With West Texas Intermediate crude averaging $94.90 for calendar year 2022, what if any, kind of change in appetite for spend are you seeing there?
Oil and gas – at these prices, customers and producers are trying to produce as much oil and gas as they can at these price levels. In general, oil and gas performed well in 2022 and we expect the same starting off in Q1, and through the entirety of fiscal 2023. This is positive for DXP’s IPS business segment as we come off a strong fiscal 2022. A portion of this success was the addition of water and wastewater acquisitions as a part of the IPS segment in fiscal 2021 and began to see the full contributions of these businesses in 2022. Water and wastewater contributed $35.2 million in sales for IPS in 2022.
2.What kind of commentary could you offer on daily -- on how daily sales have progressed, whether that's month by month or quarter to-date, year-to-date? Any context would be helpful.
Average sales per business day for the fourth quarter were $6.6 million per day, compared to $6.1 million per day in the third quarter. Sales per business day in January and February of 2023 were $5.7 million and $5.9 million per day, respectively. This is an increase of 37% and 21% on a comparative year-over-year basis.
| ($thousands) | Q3 | Oct. | Nov. | Dec. | Q4 | Jan.-23 | Feb.- 23 |
|---|---|---|---|---|---|---|---|
| Business Days | 64 | 21 | 20 | 20 | 61 | 21 | 20 |
| Sales per business day | 6,052 | 5,884 | 6,152 | 7,984 | 6,553 | 5,670 | 5,930 |
3.On operating expense. Drivers in fourth quarter moving higher? But as we move into this year, 2023, are there any factors you would point us to? Any factors that would drive that higher or lower as we move through this year?
SG&A for the fourth quarter was $87.5 million or 21.5% of fourth quarter sales.
In terms of SG&A going forward, every company in today's environment is receiving pressures around people. Sometimes it gets tag-lined with the great resignation or just people moving from company to company. We do not think DXP is any different. We are trying to do all the right things and retaining key personnel and looking at compensation, and then in general, you have inflationary pressures to -- in general, to meet those demands. We anticipate that some of that will continue as we move through 2023.
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In terms of cost in the early part of 2023, if you will, Q1 is always a disproportionately higher SG&A quarter, as a percentage of quarter sales, just because you have higher – insurance, you have payroll taxes etc. So, from an SG&A standpoint, while we have been kind of, for lack of a better word, sizing to the level of business activity throughout the business, you typically have a higher SG&A quarter as a percentage of sales in Q1. And we would continue to expect to see that here at the beginning of the year.
4.On M&A. Whatever you could share us about the pipeline in general, the number of opportunities you are looking at versus any transformative opportunities in the pipeline or more along the tuck-in route that we have seen?
We would say the pipeline sits in a few buckets. One is, we have a pocket or a pool of water/wastewater transactions. But on average, those transactions have been smaller than the average transaction size for DXP, meaning, $10 million or less in revenues. We have had some one or two sizable ones in there. But on average, you are talking in terms of revenue $10 million or less.
And then, the last bucket is, we opportunistically are also looking at some automation and some other things and closer to the bearing and PT space. And once again, some of those are much bigger than our average, and some of those are in line with our average. And so, point being, we have a full pipeline, and we see some opportunities out there for DXP. And we have been able to get reasonable valuations. So, we look to kind of push into 2023 with us closing on hopefully some acquisitions starting in Q2 2023 and keeping that ball moving forward. Once again, assuming valuations are reasonable. We are disciplined around valuation and the strategic fit for DXP.
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Segment Data
Service Centers
Innovative Pumping Solutions
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Supply Chain Services
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Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a “safe-harbor” for forward-looking statements. Certain information included in this Q&A 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, 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.
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