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): November 9, 2022
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 November 9, 2022, DXP Enterprises, Inc., issued a press release announcing financial results for the third quarter ended September 30, 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 November 9, 2022 announcing the earnings results for the third quarter ended September 30, 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: | November 9, 2022 |
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.
| Exhibit No. | Description |
|---|---|
| 99.1 | Press Release dated November 9, 2022 announcing the earnings results for the third quarter ended September 30, 2022 |
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 THIRD QUARTER 2022 RESULTS
•$387.3 million in sales, a 5.3 sequential and 33.8 percent year-over-year increase
•Net income of $13.9 million versus $7.1 million compared to Q3 2021
•GAAP diluted EPS of $0.71
•Non-GAAP diluted EPS of $0.78
•$34.3 million in earnings before interest, taxes, depreciation & amortization and other non-cash charges ("Adjusted EBITDA")
•Closed the acquisition of Sullivan Environmental Technologies, Inc.
Houston, TX – November 9, 2022 – DXP Enterprises, Inc. (NASDAQ: DXPE) today announced financial results for the third quarter ended September 30, 2022. The following are results for the three and nine months ended September 30, 2022, compared to the three and nine months ended September 30, 2021 and sequentially for the three months ended June 30, 2022, where appropriate. A reconciliation of the non-GAAP financial measures can be found in the back of this press release.
Third Quarter 2022 financial highlights:
•Sales increased 33.8 percent to $387.3 million, compared to $289.5 million for the third quarter of 2021 and 5.3 percent compared to the second quarter of 2022.
•Earnings per diluted share for the third quarter were $0.71 based upon 19.7 million diluted shares, compared to earnings of $0.36 per share in the third quarter of September 30, 2021, based on 19.6 million diluted shares. Excluding one-time non-cash charges of $1.2 million, earnings per diluted share was $0.78, assuming a 25.1 percent tax rate.
•Net income for the third quarter was $13.9 million, compared to $7.1 million for the corresponding prior-year period.
•Adjusted earnings before interest, taxes, depreciation and amortization and other non-cash charges (Adjusted EBITDA) for the third quarter of 2022 was $34.3 million compared to $18.8 million for the third quarter of 2021.
David R. Little, Chairman and CEO remarked, “Thanks to solid execution by our employees, DXP posted strong record sales results for our third quarter of 2022. Our sales growth is being fueled by diversifying into new markets, selling innovative products in new and existing markets, and helping our customers with environmental projects. Our acquisition strategy is focused on stable essential markets that are environmentally friendly. Our results are improving with 33.8 percent year-over-year and 5.3 percent sequential sales growth and 9 percent Adjusted EBITDA margins. During the third quarter, we continued to have strong organic growth within Supply Chain Services, solid organic growth in Service Centers and a meaningful increase in Innovative Pumping Solutions. For the third quarter, sales were $260.1 million for Service Centers, $68.2 million for Supply Chain Services and $59.0 million for Innovative Pumping Solutions. Thank you to all our customers and congratulations to our DXPeople for our record results."
Kent Yee, CFO, remarked, “Our third quarter sales established a new high watermark for DXP. Our third quarter year-over-year and sequential financial results continue to reflect the growth we have been experiencing and reflect our financial goals to grow organically and through acquisition. We are diversifying our end markets and business model exposure. While we face uncertainties going into next year, we remain very confident in our team, our balanced business, a strong balance sheet, and our ability to continue building and strengthening DXP through key initiatives and acquisitions. We expect to deliver exceptional performance and growth in the years ahead. Total debt outstanding as of September 30, 2022 was $364.8 million. DXP's secured leverage ratio or net debt to EBITDA ratio was 2.86:1.0 with a covenant EBITDA of $121.8 million for the last twelve months ending September 30, 2022. We expect to finish 2022 with strong momentum.”
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".
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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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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. 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 the COVID-19 pandemic and 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, 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 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS( thousands, except for share and per share amounts) | |||||||
| --- | --- | --- | --- | --- | --- | --- | --- |
| Nine Months Ended September 30, | |||||||
| 2021 | 2022 | 2021 | |||||
| Sales | 387,314 | $ | 289,494 | $ | 1,074,537 | $ | 820,772 |
| Cost of sales | 202,551 | 763,758 | 576,921 | ||||
| Gross profit | 86,943 | 310,779 | 243,851 | ||||
| Selling, general and administrative expenses | 75,758 | 236,761 | 211,587 | ||||
| Operating income | 11,185 | 74,018 | 32,264 | ||||
| Other (income) loss | (450) | 2,941 | (985) | ||||
| Interest expense | 5,264 | 17,610 | 15,844 | ||||
| Income before income taxes | 6,371 | 53,467 | 17,405 | ||||
| Provision for income taxes | (565) | 13,402 | 2,380 | ||||
| Net income | 6,936 | 40,065 | 15,025 | ||||
| Net income (loss) attributable to NCI* | (189) | (938) | (590) | ||||
| Net income attributable to DXP Enterprises, Inc. | 7,125 | 41,003 | 15,615 | ||||
| Preferred stock dividend | 23 | 67 | 68 | ||||
| Net income attributable to common shareholders | 13,907 | $ | 7,102 | $ | 40,936 | $ | 15,547 |
| Diluted earnings per share attributable to DXP Enterprises, Inc. | 0.71 | $ | 0.36 | $ | 2.10 | $ | 0.78 |
| Weighted average common shares and common equivalent shares outstanding | 19,550 | 19,552 | 19,900 | ||||
| *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 third quarter was $260.1 million, a 3.6 percent sequential increase and an increase of 22.4 percent year-over-year with a 13.7 percent operating income margin.
•Innovative Pumping Solutions’ revenue for the third quarter was $59.0 million, a sequential increase of 2.2 percent and an increase of 62.0 percent year-over-year with a 12.4 percent operating income margin.
•Supply Chain Services’ revenue for the third quarter was $68.2 million, a 15.7 percent sequential increase and an increase of 68.3 percent year-over-year with a 7.8 percent operating income margin.
SEGMENT DATA
($ thousands, unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| Sales | 2022 | 2021 | 2022 | 2021 | ||||
| Service Centers | $ | 260,083 | $ | 212,539 | $ | 729,977 | $ | 608,542 |
| Innovative Pumping Solutions | 59,044 | 36,440 | 169,890 | 96,411 | ||||
| Supply Chain Services | 68,187 | 40,515 | 174,670 | 115,819 | ||||
| Total DXP Sales | $ | 387,314 | $ | 289,494 | $ | 1,074,537 | $ | 820,772 |
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
| Operating Income | 2022 | 2021 | 2022 | 2021 | ||||
| Service Centers | $ | 35,718 | $ | 29,381 | $ | 95,437 | $ | 77,819 |
| Innovative Pumping Solutions | 7,327 | 277 | 23,122 | 6,027 | ||||
| Supply Chain Services | 5,332 | 3,181 | 14,311 | 8,991 | ||||
| Total segments operating income | $ | 48,377 | $ | 32,839 | $ | 132,870 | $ | 92,837 |
Reconciliation of Operating Income for Reportable Segments
($ thousands, unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||
| Operating income for reportable segments | $ | 48,377 | $ | 32,839 | $ | 132,870 | $ | 92,837 |
| Adjustment for: | ||||||||
| Amortization of intangibles | 5,132 | 4,238 | 13,958 | 12,690 | ||||
| Corporate expenses | 16,706 | 17,416 | 44,894 | 47,883 | ||||
| Total operating income | $ | 26,539 | $ | 11,185 | $ | 74,018 | $ | 32,264 |
| Interest expense | 6,833 | 5,264 | 17,610 | 15,844 | ||||
| Other (income) loss | 1,565 | (450) | 2,941 | (985) | ||||
| Income before income taxes | $ | 18,141 | $ | 6,371 | $ | 53,467 | $ | 17,405 |
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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)
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 September 30, | Nine Months Ended September 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||
| Income before income taxes | $ | 18,141 | $ | 6,371 | $ | 53,467 | $ | 17,405 |
| Plus: interest expense | 6,833 | 5,264 | 17,610 | 15,844 | ||||
| Plus: depreciation and amortization | 7,493 | 6,486 | 21,325 | 20,070 | ||||
| EBITDA | $ | 32,467 | $ | 18,121 | $ | 92,402 | $ | 53,319 |
| Plus: NCI income (loss) before tax* | $ | 159 | $ | 190 | $ | 433 | $ | 787 |
| Plus: One-time non-cash loss | 1,193 | — | 1,193 | — | ||||
| Plus: stock compensation expense | 505 | 514 | 1,368 | 1,354 | ||||
| Adjusted EBITDA | $ | 34,324 | $ | 18,825 | $ | 95,396 | $ | 55,460 |
| * 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 CONDENSED CONSOLIDATED BALANCE SHEETS
($ thousands)
| September 30, 2022 | December 31, 2021 | |||
|---|---|---|---|---|
| ASSETS | ||||
| Current assets: | ||||
| Cash | $ | 16,972 | $ | 48,989 |
| Restricted cash | 91 | 91 | ||
| Accounts receivable, net of allowances for doubtful accounts | 283,522 | 218,137 | ||
| Inventories | 131,290 | 100,894 | ||
| Costs and estimated profits in excess of billings | 30,122 | 17,193 | ||
| Prepaid expenses and other current assets | 11,652 | 9,522 | ||
| Income taxes receivable | 652 | 9,748 | ||
| Total current assets | $ | 474,301 | $ | 404,574 |
| Property and equipment, net | 46,657 | 51,880 | ||
| Goodwill | 332,988 | 296,541 | ||
| Other intangible assets, net of accumulated amortization | 84,516 | 79,205 | ||
| Operating lease right-of-use assets | 54,054 | 57,221 | ||
| Other long-term assets | 3,559 | 4,806 | ||
| Total assets | $ | 996,075 | $ | 894,227 |
| LIABILITIES AND EQUITY | ||||
| Current liabilities: | ||||
| Current maturities of debt | $ | 43,906 | $ | 3,300 |
| Trade accounts payable | 97,947 | 77,842 | ||
| Accrued wages and benefits | 27,455 | 23,006 | ||
| Customer advances | 25,496 | 12,924 | ||
| Billings in excess of costs and estimated profits | 4,265 | 3,581 | ||
| Federal income taxes payable | 587 | 0 | ||
| Current-portion operating lease liabilities | 17,526 | 18,203 | ||
| Other current liabilities | 28,679 | 42,206 | ||
| Total current liabilities | $ | 245,861 | $ | 181,062 |
| Long-term debt, less unamortized debt issuance costs | 313,739 | 315,397 | ||
| Long-term operating lease liabilities | 37,279 | 39,922 | ||
| Other long-term liabilities | 4,637 | 3,603 | ||
| Deferred income taxes | 8,947 | 7,516 | ||
| Total long-term liabilities | $ | 364,602 | $ | 366,438 |
| Total Liabilities | $ | 610,463 | $ | 547,500 |
| Equity: | ||||
| Total DXP Enterprises, Inc. equity | 386,497 | 346,674 | ||
| Non-controlling interest | (885) | 53 | ||
| Total Equity | $ | 385,612 | $ | 346,727 |
| Total liabilities and equity | $ | 996,075 | $ | 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)
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 September 30, | Nine Months Ended September 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||
| Net cash from operating activities | $ | (3,432) | $ | 6,625 | $ | 2,256 | $ | 22,831 |
| Less: purchases of property and equipment | (1,578) | (1,458) | (3,426) | (2,984) | ||||
| Plus: proceeds from sales of property & equipment | — | — | — | 1,297 | ||||
| Free cash flow | $ | (5,010) | $ | 5,167 | $ | (1,170) | $ | 21,144 |
Note: Supplemental non-cash items include share repurchases which have been excluded.
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 September 30, | Nine Months Ended September 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||
| GAAP Net Income: | $ | 13,907 | $ | 7,102 | $ | 40,936 | $ | 15,547 |
| One-time non-cash loss | 1,193 | — | 1,193 | — | ||||
| Adjustment for taxes* | 299 | — | 299 | — | ||||
| Non-GAAP net income | $ | 15,399 | $ | 7,102 | $ | 42,428 | $ | 15,547 |
| Diluted earnings per share: | ||||||||
| GAAP | $ | 0.71 | $ | 0.36 | $ | 2.10 | $ | 0.78 |
| Non-GAAP | $ | 0.78 | $ | 0.36 | $ | 2.17 | $ | 0.78 |
| * Adjustment for taxes relates to the tax effects of the adjustments that we incorporate into non-GAAP measures in order to provide a more meaningful measure on non-GAAP net income. For tax purposes the year-to-date effective tax rate of 25.1 percent was applied to the one-time non-cash loss for conservative purposes. |
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