DXP Enterprises, Inc. Reports Third Quarter 2023 Results

November 9, 2023

$27.2 million in cash
$419.2 million in sales, an 8.2 percent year-over-year increase
$1,271.6 million in year to date sales, an 18.3 percent year-over-year increase
Diluted earnings per share of $0.93, up 31.0 percent compared to Q3 2022
$44.0 million in earnings before interest, taxes, depreciation & amortization and other non-cash charges (“Adjusted EBITDA”)
Free Cash Flow of $38.3 million and $56.7 million for the three and nine months ended September 30, 2023
Post Q3, successfully reduced borrowing costs by fifty basis points and raised an incremental $125 million

HOUSTON–(BUSINESS WIRE)–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 SUBSIDIARIES UNAUDITED 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 SUBSIDIARIES UNAUDITED 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	)