Dxp enterprises reports preliminary (unreviewed) second quarter 2021 results
Houston--(business wire)--dxp enterprises, inc. (nasdaq: dxpe) today announced preliminary (unreviewed) financial results for the second quarter ended june 30, 2021. the following are results for the three and six months ended june 30, 2021, compared to the three and six months ended june 30, 2020 and sequentially for the three months ended march 31, 2021, where appropriate. a reconciliation of the non-gaap financial measures can be found in the back of this press release. the preliminary results are unaudited and are based on management’s initial review of dxp’s financial results for the three month period ended june 30, 2021. second quarter 2021 financial highlights: sales increased 16.2 percent sequentially to $285.5 million, compared to $245.6 million for the first quarter of 2021 and increased 13.6 percent compared to $251.4 million for the second quarter of 2020. earnings per diluted share for the second quarter was $0.40 based upon 20.1 million diluted shares, compared to $0.12 per share in the second quarter of june 30, 2020, based on 18.6 million diluted shares. net income for the second quarter was $8.1 million, compared to $2.1 million for the prior-year period. adjusted earnings before interest, taxes, depreciation and amortization (adjusted ebitda) for the second quarter of 2021 was $22.6 million compared to $13.9 million for the first quarter of 2021 and $13.8 million for the second quarter of 2020. cash flow from operations was $7.6 million, compared to $63.4 million for the prior-year period. free cash flow (cash flow from operations less capital expenditures) for the second quarter of 2021 was $6.8 million, compared to $61.6 million in the second quarter of 2020. david r. little, chairman and ceo commented, “i am pleased that dxp’s performance continues to strengthen as we accelerate into the covid-19 recovery. our team continued to improve execution in the second quarter, driving sequential sales growth, and gross margin improvement while maintaining cost discipline. as a result of this performance and the team’s execution, we are confident we will continue to position dxp for long-term profitable growth and a positive outlook for the second half of 2021. dxp’s second quarter 2021 sales were $285.5 million, or a 16.2 percent increase over the first quarter. during the second quarter, sales were $209.5 million for service centers, $39.3 million for supply chain services and $36.7 million for innovative pumping solutions. most of our customers and the markets we serve continue to show improvement. we remain encouraged by the sequential increases despite the continued choppiness associated with covid-19. thank you to all our customers and dxpeople for the support and efforts to remain safe and healthy while moving forward." kent yee, cfo, added, “our second quarter sequential sales growth of 16.2 percent and $6.8 million in free cash flow was great to see. our financial results reflect our continued focus on our customers and improving market conditions. as of june 30, 2021, we had $79.3 million in cash and cash equivalents. we have completed two acquisitions since the four at year-end, as well as executing share repurchases which were completed towards the end of the quarter. we are well on our way into diversifying dxp’s end markets while creating stakeholder value. we turned dxp’s sales growth into a 64.6 percent sequential increase in ebitda and $0.28 per share year-over-year improvement in earnings per diluted share. total debt outstanding as of june 30, 2021 was $328.4 million with senior leverage of 3.11:1, well under our covenant of 5.75:1. “we are excited by our sales team’s focus on organic sales growth as well as the contributions from recent acquisitions. the teamwork as well as the overall tone at dxp is moving in the right direction and we look forward to continuing the momentum into the second half of the year.” financial strength and liquidity net debt, calculated as total long-term debt, net of cash and cash equivalents, on our balance sheet as of june 30, 2021, was $249.1 million compared to $201.7 million at march 31, 2021. as of june 30, 2021, dxp has approximately $210.5 million in liquidity, consisting of $79.2 million in cash on hand and approximately $131.3 million in availability under our abl facility. dxp will not host a conference call regarding june 30, 2021 second quarter results (see update on form 10-q and auditor review). update on form 10-q filing and auditor review during the second quarter, the company determined it had aged un-vouchered purchase orders included in trade accounts payable. after lengthy investigation and research, the company concluded that these balances were not valid obligations to vendors and will never be invoiced or paid. some of the balances in this account are more than three years old and are beyond a reasonable expectation that they will be settled and are not considered legal obligations of the company. the company preliminarily assessed the materiality of this error in accordance with staff accounting bulletin no. 99, “materiality”, and the company believes that, qualitatively, the amounts would have no bearing on the decision-making process of a reasonable investor. the company applied the guidance in staff accounting bulletin no. 108, “considering the effects of prior year misstatements when quantifying misstatements in current year financial statements” and assessing the out of period items’ impact using the dual approach, as described in the standard, using both the rollover and iron curtain methods to assess significance and concluded the impact on prior period financial statements was not material. the company continues to review the impact of these items on prior periods and intends to adjust prior year balances to reflect the immaterial changes. our independent registered public accounting firm has not completed their review procedures on the adjustment. for the consolidated balance sheets, the company expects to reduce trade accounts payable by an estimated $8 million - $12 million and increase retained earnings by a corresponding amount less the impacts associated with taxes. in addition, we expect to reduce the cost of sales in the consolidated statement of operations and reflect the associated impacts to the provision for income taxes for the comparative periods presented. additionally, we are in the process of assessing the impact of this issue on our assessment that our internal control over financial reporting is effective. once the analysis is finalized and our independent registered public accounting firm has completed their review, the company intends to revise its consolidated financial statements for the periods prior to june 30, 2021 through subsequent periodic filings. non-gaap financial measures dxp supplements reporting of net income with non-gaap measurements, including ebitda, adjusted ebitda, free cash flow, non-gaap net income and net debt. this supplemental information should not be considered in isolation or as a substitute for the unaudited gaap measurements. additional information regarding ebitda, adjusted ebitda, free cash flow and non-gaap net income referred to in this press release are included below under "unaudited reconciliation of non-gaap financial information." the company believes ebitda provides additional information about: (i) operating performance, because it assists in comparing the operating performance of the business, as it removes the impact of non-cash depreciation and amortization expense as well as items not directly resulting from core operations such as interest expense and income taxes and (ii) the performance and the effectiveness of operational strategies. additionally, ebitda performance is a component of a measure of the company’s financial covenants under its credit 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. dxp enterprises, inc. and subsidiaries unaudited condensed consolidated statements of operations ($ thousands, except per share amounts) (unreviewed) (unreviewed) (unreviewed) three months ended june 30, six months ended june 30, 2021 2020 2021 2020 sales $ 285,516 $ 251,401 $ 531,132 $ 552,384 cost of sales* 200,313 181,705 374,320 398,703 gross profit 85,203 69,696 156,812 153,681 selling, general and administrative expenses 70,432 62,943 135,829 136,013 operating income 14,771 6,753 20,983 17,668 other (income) loss (104) 133 (534) (701) interest expense 5,337 3,930 10,580 8,307 income before income taxes 9,538 2,690 10,937 10,062 provision for income taxes 1,606 610 2,877 2,334 net income 7,932 2,080 8,060 7,728 net loss attributable to nci** (190) (62) (402) (124) net income attributable to dxp enterprises, inc. 8,122 2,142 8,462 7,852 preferred stock dividend 22 22 45 45 net income attributable to common shareholders $ 8,100 $ 2,120 $ 8,417 $ 7,807 diluted earnings per share attributable to dxp enterprises, inc. $ 0.40 $ 0.12 $ 0.42 $ 0.42 weighted average common shares and common equivalent shares outstanding 20,131 18,575 20,079 18,559 *year-to-date fiscal 2021 cost of sales could potentially be reduced by an immaterial amount, pending final review of financials. additionally, year-to-date cost of sales for fiscal 2020 could include a reduction of less than $1.0m pending finalization of restatement analysis described above. **nci represents non-controlling interest business segment financial highlights: service centers’ revenue for the second quarter was $209.5 million, a 12.4 percent sequential increase and an increase of 36.1 percent year-over-year with a 12.5 percent operating income margin. innovative pumping solutions’ revenue for the second quarter was $36.7 million, a sequential increase of 58.0 percent and a decrease of 39.3 percent year-over-year with a 13.1 percent operating income margin. supply chain services’ revenue for the second quarter was $39.3 million, a 9.3 percent sequential increase and a increase of 6.1 percent year-over-year with a 8.9 percent operating income margin. segment data ($ thousands, unaudited) (unreviewed) (unreviewed) (unreviewed) (unreviewed) three months ended june 30, six months ended june 30, sales 2021 2020 2021 2020 service centers $ 209,458 $ 153,848 $ 395,856 $ 336,433 innovative pumping solutions 36,727 60,479 59,972 130,500 supply chain services 39,331 37,074 75,304 85,451 total dxp sales $ 285,516 $ 251,401 $ 531,132 $ 552,384 three months ended june 30, six months ended june 30, operating income 2021 2020 2021 2020 service centers $ 26,226 $ 13,664 $ 48,342 $ 30,590 innovative pumping solutions 4,803 8,565 5,751 18,993 supply chain services 3,488 3,353 5,810 7,108 total segments operating income $ 34,517 $ 25,582 $ 59,903 $ 56,691 reconciliation of operating income for reportable segments ($ thousands, unaudited) (unreviewed) (unreviewed) (unreviewed) (unreviewed) three months ended june 30, six months ended june 30, 2021 2020 2021 2020 operating income for reportable segments* $ 34,517 $ 25,582 $ 59,903 $ 56,691 adjustment for: amortization of intangibles 4,306 3,046 8,452 6,243 corporate expenses 15,440 15,783 30,468 32,780 total operating income $ 14,771 $ 6,753 $ 20,983 $ 17,668 interest expense 5,337 3,930 10,580 8,307 other (income) loss (104) 133 (534) (701) income before income taxes $ 9,538 $ 2,690 $ 10,937 $ 10,062 *see update on form 10-q filing and auditor review 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 before taxes, calculated and reported in accordance with u.s. gaap. (unreviewed) (unreviewed) (unreviewed) (unreviewed) three months ended june 30, six months ended june 30, 2021 2020 2021 2020 income before income taxes* 9,538 2,690 10,937 10,062 plus: interest expense 5,337 3,930 10,580 8,307 plus: depreciation and amortization 6,958 5,965 13,584 11,990 ebitda $ 21,833 $ 12,585 $ 35,101 $ 30,359 plus: nci loss income before tax** 315 221 598 303 plus: stock compensation expense 460 983 840 1,887 adjusted ebitda $ 22,608 $ 13,789 $ 36,539 $ 32,549 *see update on form 10-q filing and auditor review ** nci represents non-controlling interest dxp enterprises, inc. and subsidiaries unaudited condensed consolidated balance sheets ($ thousands, except per share amounts) (unreviewed) june 30, 2021 december 31, 2020 assets current assets: cash $ 79,169 $ 117,353 restricted cash 91 91 accounts receivable, net of allowances for doubtful accounts 191,853 163,429 inventories 103,447 97,071 costs and estimated profits in excess of billings 16,718 18,459 prepaid expenses and other current assets 6,914 4,548 federal income taxes receivable 6,088 5,632 total current assets $ 404,280 $ 406,583 property and equipment, net 52,456 56,899 goodwill 300,865 248,339 other intangible assets, net of accumulated amortization 83,175 80,088 operating lease right-of-use assets 56,173 55,188 other long-term assets 5,448 4,764 total assets $ 902,397 $ 851,861 liabilities and equity current liabilities: current maturities of long-term debt $ 3,300 $ 3,300 trade accounts payable* 91,053 75,744 accrued wages and benefits 26,240 20,621 customer advances 7,426 3,688 billings in excess of costs and estimated profits 2,300 4,061 current-portion operating lease liabilities 17,512 15,891 other current liabilities 50,004 20,834 total current liabilities $ 197,835 $ 144,139 long-term debt, less unamortized debt issuance costs 316,343 317,139 long-term operating lease liabilities 37,907 38,010 other long-term liabilities 2,931 2,930 deferred income taxes 2,520 1,777 total long-term liabilities $ 359,701 $ 359,856 total liabilities $ 557,536 $ 503,995 equity: total dxp enterprises, inc. equity* 344,465 347,068 non-controlling interest 396 798 total equity $ 344,861 $ 347,866 total liabilities and equity $ 902,397 $ 851,861 *see update on form 10-q and auditor review 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 and is an update to dxp's pre-announcement dated august 5, 2021, for the three and six months period ended june 30, 2021. (unreviewed) (unreviewed) (unreviewed) (unreviewed) three months ended june 30, six months ended june 30, 2021 2020 2021 2020 net cash from operating activities $ 7,630 $ 63,376 $ 18,182 $ 61,764 less: purchases of property and equipment (846) (1,898) (1,526) (5,133) plus: proceeds from sales of property and equipment — 123 1,297 123 free cash flow $ 6,784 $ 61,601 $ 17,953 $ 56,754 note: supplemental non-cash items include share repurchases and additional accrued purchase price owed, which have been excluded.
