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DXP Enterprises Reports Fourth Quarter and Fiscal 2021 Results

  • Fiscal 2021 sales of $1.1 billion, up 10.8 percent from fiscal 2020
  • Solid full Year GAAP diluted EPS of $0.83
  • $70.2 million in earnings before interest, taxes, depreciation, amortization and other non-cash charges ("Adjusted EBITDA")
  • $49.0 million in cash
  • Free cash flow for the year of $32.8 million
  • Closed three acquisitions during the fiscal year - Carter & Verplanck, Process Machinery and Premier Water

DXP Enterprises, Inc. (NASDAQ: DXPE) today announced financial results for the fourth quarter and fiscal year ended December 31, 2021. The following are results for the three and twelve months ended December 31, 2021, compared to the three and twelve months ended December 31, 2020. A reconciliation of the non-GAAP financial measures can be found in the back of this press release.

Fourth Quarter 2021 financial highlights:

  • Sales grew 26.0 percent to $293.1 million, compared to $232.7 million for the fourth quarter of 2020.
  • Earnings per diluted share for the fourth quarter was $0.05 based upon 19.6 million diluted shares, compared to $(0.18) per share in the fourth quarter of 2020, based on 17.8 million diluted shares. Excluding inventory impairment charges and debt extinguishment costs, earnings per diluted share was $0.13 per share, for the fourth quarter of 2020.

Fiscal Year 2021 financial highlights:

  • Sales increased 10.8 percent to $1.1 billion, compared to $1.0 billion for 2020.
  • Earnings per diluted share for 2021 was $0.83 based upon 19.8 million diluted shares, compared to a loss of $(1.65) per share in 2020, based on 17.7 million basic shares. Excluding non-cash impairment and other one-time charges of $59.9 million, and $5.4 million in debt extinguishment costs, earnings per diluted share were $0.73 per share, assuming a 22.5% tax rate for full year 2020 .
  • Adjusted EBITDA for 2021 was $70.2 million compared to $59.0 million for 2020. Adjusted EBITDA as a percentage of sales was 6.3 percent and 5.9 percent, respectively.
  • Free cash flow (cash flow from operating activities less capital expenditures) for the full year was $32.8 million.

David R. Little, Chairman and CEO commented, “Given that our oil and gas customers' budgets were significantly reduced and the impact of COVID were stronger during the first of half of 2021, impacting the industrial side of DXP, fiscal 2021 was a good transitional year. DXP experienced growth in sales and gross margin resulting in 19.1 percent year-over-year growth in adjusted EBITDA. We are pleased with the overall financial performance in 2021. Similar to last year, fiscal 2021 was another unique year and presented corporate, societal and individual challenges. During the second half of 2021, we worked through accelerating supply chain headwinds and the beginning of meaningful inflation along with the continued impacts from COVID-19. DXP’s fiscal 2021 total sales were $1.1 billion a 10.8 percent increase year-over-year. Service Center sales were up 23.2 percent to $816.5 million, followed by Supply Chain Services growing 2.1 percent at $157.8 million and Innovative Pumping Solutions sales declined 25.8 percent to $139.6 million."

Mr. Little continued, "The sales momentum from our fourth quarter has positioned us for continued success as we move into 2022. Specifically, we have now experienced two sequential quarters of organic growth within IPS. The improved but volatile conditions in our traditional end markets along with DXP setting the stage to accelerate new growth through our focus on new markets, products and continued efficiency will be a catalyst as we move forward and into 2022. We are targeting opportunities in less cyclical markets, such as water and other general industries, while supporting our customers’ aspirations to decarbonize and maximize energy efficiency. We are confident that our growth strategy, coupled with a continued focus on improving margins will drive shareholder value."

Kent Yee, CFO commented, "Fiscal year 2021 financial performance reflects a turning of the business during the second half of the year. During the first and second quarter, the business was still declining and working through the impacts of COVID-19 on a year-over-year basis. In the second half of fiscal year 2021, we grew the business organically 13.1 percent. Overall, we are pleased with our fourth quarter and full year results. Total sales for the year grew 10.8 percent. Our fiscal year 2021 diluted earnings per share was $0.83. We generated $32.8 million in free cash flow, which reflects investments in working capital as we started to grow during the second half of the year. We continue to execute on our acquisition program having closed three acquisitions, bringing the total to seven acquisitions during this COVID cycle. We continue to deliver financial results that display our ability to adjust to the current environment while keeping our eyes toward the future with proactive actions including opportunistic share repurchases. During the year we repurchased 1.2 million shares or $33.5M in stock. As of December 31, 2021, we had $49.1 million in cash and cash equivalents on the balance sheet. Our secured leverage was 3.71:1, well under our covenant limit of 5.50:1. We continue to have momentum going into fiscal 2022 and we expect to drive organic and acquisition based growth."

Auditor Transition Update

DXP has successfully completed its auditor transition plan. Earlier this morning, DXP announced its Audit Committee selected PricewaterhouseCoopers LLP as its independent registered public accounting firm for the 2022 fiscal year. McConnell & Jones LLP will continue in its capacity through the completion of their audit services for the fiscal year ended December 31, 2021, and the filing of DXP’s 2021 Form 10-K.

Over the last four years, DXP has been focused on ensuring we are building a strong finance and accounting team, enhanced capabilities and increased functionality that would support and propel DXP into becoming a multi-billion-dollar company. This plan is centered around continuous improvement in people, accounting processes and technology to support the variety of businesses that are integral to DXP.

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, 2021, was $277.7 million compared to $210.7 million at December 31, 2020. As of December 31, 2021, DXP has approximately $180.7 million in liquidity, consisting of $49.0 million in cash on hand and approximately $131.7 million in availability under our ABL facility.

We will host a conference call regarding December 31, 2021 fourth quarter results on the Company’s website (www.dxpe.com) Friday, March 25, 2022 at 10:30 am CST. Web participants are encouraged to go to the Company’s website at least 15 minutes prior to the start of the call to register, download and install any necessary audio software. The online archived replay will be available immediately after the conference call at www.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 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.

 

DXP ENTERPRISES, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

($ thousands, except per share amounts)

 

 

 

 

 

 

 

Three Months Ended

December 31,

 

Twelve Months Ended

December 31,

 

 

2021

 

2020

 

2021

 

2020

 

 

 

 

 

 

 

 

 

Sales

 

$

293,149

 

 

$

232,689

 

 

$

1,113,921

 

 

$

1,005,266

 

Cost of sales

 

 

208,494

 

 

 

170,122

 

 

 

785,415

 

 

 

728,070

 

Gross profit

 

 

84,655

 

 

 

62,567

 

 

 

328,506

 

 

 

277,196

 

Selling, general and administrative expenses

 

 

77,062

 

 

 

56,497

 

 

 

288,649

 

 

 

244,981

 

Impairments and other charges

 

 

 

 

 

11,482

 

 

 

 

 

 

59,883

 

Operating income (loss)

 

 

7,593

 

 

 

(5,412

)

 

 

39,857

 

 

 

(27,668

)

Other expense (income), net

 

 

570

 

 

 

455

 

 

 

(414

)

 

 

74

 

Interest expense

 

 

5,245

 

 

 

8,512

 

 

 

21,089

 

 

 

20,571

 

Income (loss) before income taxes

 

 

1,778

 

 

 

(14,379

)

 

 

19,182

 

 

 

(48,313

)

Provision (benefit) for income taxes

 

 

1,051

 

 

 

(11,049

)

 

 

3,431

 

 

 

(18,696

)

Net income (loss)

 

 

727

 

 

 

(3,330

)

 

 

15,751

 

 

 

(29,617

)

Net loss attributable to NCI*

 

 

(155

)

 

 

(115

)

 

 

(745

)

 

 

(348

)

Net income (loss) attributable to DXP Enterprises, Inc.

 

 

882

 

 

 

(3,215

)

 

 

16,496

 

 

 

(29,269

)

Preferred stock dividend

 

 

22

 

 

 

22

 

 

 

90

 

 

 

90

 

Net income (loss) attributable to common shareholders

 

$

860

 

 

$

(3,237

)

 

$

16,406

 

 

$

(29,359

)

Diluted earnings (loss) per share attributable to DXP Enterprises, Inc. **

 

$

0.05

 

 

$

(0.18

)

 

$

0.83

 

 

$

(1.65

)

Weighted average common shares and common equivalent shares outstanding

 

 

19,579

 

 

 

17,777

 

 

 

19,789

 

 

 

17,748

 

 

 

 

 

 

 

 

 

 

*NCI represents non-controlling interest

** Fiscal year 2020 diluted earnings per share for GAAP purposes was calculated using basic weighted average shares outstanding. Due to a loss for the period, convertible preferred stock shares are excluded from the computation of diluted EPS because the effect will be antidilutive.

Business segment financial highlights:

  • Service Centers’ revenue for the fiscal year was $816.5 million, an increase of 23.2 percent year-over-year with a 12.1 percent operating income margin.
    • Revenue for the fourth quarter was $208.0 million, an increase of 28.9 percent year-over-year with a 10.4 percent operating income margin.
  • Innovative Pumping Solutions’ revenue for the fiscal year was $139.6 million, a decrease of 25.7 percent year over year with an 8.6 percent operating income margin.
    • Revenue for the fourth quarter was $43.2 million, an increase of 21.2 percent year-over-year with an operating income margin of 14.0 percent.
  • Supply Chain Services’ revenue for the fiscal year was $157.8 million, an increase of 2.1 percent year-over-year with a 7.6 percent operating margin.
    • Revenue for the fourth quarter was $42.0 million, an increase of 17.4 percent year-over-year with a 6.6 percent operating income margin.
 

SEGMENT DATA

($ thousands, unaudited)

 

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

Sales

2021

 

2020

 

2021

 

2020

Service Centers

$

207,955

 

$

161,284

 

$

816,496

 

$

662,617

Innovative Pumping Solutions

 

43,179

 

 

35,615

 

 

139,591

 

 

187,991

Supply Chain Services

 

42,015

 

 

35,790

 

 

157,834

 

 

154,658

Total DXP Sales

$

293,149

 

$

232,689

 

$

1,113,921

 

$

1,005,266

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

Operating Income

2021

 

2020

 

2021

 

2020

Service Centers

$

21,679

 

$

18,303

 

$

98,931

 

$

71,834

Innovative Pumping Solutions

 

6,043

 

 

802

 

 

12,070

 

 

16,882

Supply Chain Services

 

2,787

 

 

2,796

 

 

11,963

 

 

12,804

Total segments operating income

$

30,509

 

$

21,901

 

$

122,964

 

$

101,520

Reconciliation of Operating Income for Reportable Segments

($ thousands, unaudited)

 

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

2021

 

2020

 

2021

 

2020

Operating income for reportable segments

$

30,509

 

$

21,901

 

 

$

122,964

 

 

$

101,520

 

Adjustment for:

 

 

 

 

 

 

 

Impairments and other charges

 

 

 

11,482

 

 

 

 

 

 

59,883

 

Amortization of intangibles

 

4,507

 

 

2,991

 

 

 

17,197

 

 

 

12,287

 

Corporate expenses

 

18,409

 

 

12,707

 

 

 

65,910

 

 

 

57,018

 

Total operating income (loss)

$

7,593

 

$

(5,279

)

 

$

39,857

 

 

$

(27,668

)

Interest and other financing expenses

 

5,245

 

 

8,512

 

 

 

21,089

 

 

 

20,571

 

Other expense (income), net

 

570

 

 

455

 

 

 

(414

)

 

 

74

 

Income (loss) before income taxes

$

1,778

 

$

(14,246

)

 

$

19,182

 

 

$

(48,313

)

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,

 

2021

 

2020

 

2021

 

2020

Income (loss) before income taxes

 

1,778

 

 

(14,379

)

 

$

19,182

 

$

(48,313

)

Plus: interest and other financing expenses

 

5,245

 

 

8,512

 

 

 

21,089

 

 

20,571

 

Plus: depreciation and amortization

 

7,073

 

 

5,389

 

 

 

27,143

 

 

22,683

 

EBITDA

$

14,096

 

$

(478

)

 

$

67,414

 

$

(5,059

)

 

 

 

 

 

 

 

 

Plus: NCI loss income before tax*

 

206

 

 

232

 

 

 

993

 

 

632

 

Plus: Impairment and other charges

 

 

 

11,482

 

 

 

 

 

59,883

 

Plus: stock compensation expense

 

469

 

 

662

 

 

 

1,823

 

 

3,532

 

Adjusted EBITDA

$

14,771

 

$

11,898

 

 

$

70,230

 

$

58,988

 

 

 

 

 

 

 

 

 

* NCI represents non-controlling interest

 

 

 

 

 

 

 

DXP ENTERPRISES, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

($ thousands, except per share amounts)

 

 

December 31, 2021

 

December 31, 2020

ASSETS

 

 

 

Current assets:

 

 

 

Cash

$

48,989

 

$

119,328

Restricted cash

 

91

 

 

91

Accounts receivable, net of allowances for doubtful accounts

 

218,137

 

 

166,941

Inventories

 

100,894

 

 

97,071

Costs and estimated profits in excess of billings

 

17,193

 

 

18,459

Prepaid expenses and other current assets

 

9,522

 

 

4,548

Federal income taxes receivable

 

9,748

 

 

2,987

Total current assets

$

404,574

 

$

409,425

Property and equipment, net

 

51,880

 

 

56,899

Goodwill

 

308,506

 

 

261,767

Other intangible assets, net of accumulated amortization

 

79,205

 

 

80,088

Operating lease right-of-use assets

 

57,221

 

 

55,188

Other long-term assets

 

4,806

 

 

4,764

Total assets

$

906,192

 

$

868,131

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

Current liabilities:

 

 

 

Current maturities of long-term debt

$

3,300

 

$

3,300

Trade accounts payable

 

77,842

 

 

64,849

Accrued wages and benefits

 

23,006

 

 

20,621

Customer advances

 

12,924

 

 

3,688

Billings in excess of costs and estimated profits

 

3,581

 

 

4,061

Current-portion operating lease liabilities

 

18,203

 

 

15,891

Other current liabilities

 

42,206

 

 

34,729

Total current liabilities

$

181,062

 

$

147,139

Long-term debt, less unamortized debt issuance costs

 

315,397

 

 

317,139

Long-term operating lease liabilities

 

39,922

 

 

38,010

Other long-term liabilities

 

3,603

 

 

2,930

Deferred income taxes

 

7,516

 

 

1,777

Total long-term liabilities

$

366,438

 

$

359,856

Total Liabilities

$

547,500

 

$

506,995

Equity:

 

 

 

Total DXP Enterprises, Inc. equity

 

358,639

 

 

360,338

Non-controlling interest

 

53

 

 

798

Total Equity

$

358,692

 

$

361,136

Total liabilities and equity

$

906,192

 

$

868,131

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,

 

2021

 

2020

 

2021

 

2020

Net cash from operating activities

$

14,258

 

 

$

17,413

 

 

$

37,089

 

 

$

109,650

 

Less: purchases of property and equipment

 

(3,015

)

 

 

(142

)

 

 

(5,999

)

 

 

(6,672

)

Plus: proceeds from sales of property and equipment

 

372

 

 

 

 

 

 

1,669

 

 

 

123

 

Free cash flow

$

11,615

 

 

$

17,271

 

 

$

32,759

 

 

$

103,101

 

 

 

 

 

 

 

 

 

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,

 

2021

 

2020

 

2021

 

2020

GAAP Net Income (Loss) :

$

882

 

$

(3,215

)

 

$

16,496

 

$

(29,269

)

Impairment and other charges

 

 

 

11,482

 

 

 

 

 

59,883

 

Extinguishment of debt in connection with refinancing

 

 

 

5,443

 

 

 

 

 

5,443

 

Adjustment for taxes*

 

 

 

(11,527

)

 

 

 

 

(22,363

)

Non-GAAP net income

$

882

 

$

2,183

 

 

$

16,496

 

$

13,694

 

 

 

 

 

 

 

 

 

Weighted average common shares and common equivalent shares outstanding **

 

 

 

 

 

 

 

Basic

 

18,739

 

 

17,777

 

 

 

18,949

 

 

17,748

 

Diluted

 

19,579

 

 

17,777

 

 

 

19,789

 

 

17,748

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share:

 

 

 

 

 

 

 

GAAP **

$

0.05

 

$

(0.18

)

 

$

0.83

 

$

(1.65

)

Non-GAAP

$

0.05

 

$

0.13

 

 

$

0.83

 

$

0.73

 

 

 

 

 

 

 

 

 

* 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 22.5 percent was applied to the impairments and other charges for conservative purposes.

** Fiscal year 2020 diluted earnings per share for GAAP purposes was calculated using basic weighted average shares outstanding. Due to a loss for the period, convertible preferred stock shares are excluded from the computation of diluted EPS because the effect will be antidilutive.

 

Contacts

DXP Enterprises, Inc.

Kent Yee, 713-996-4700

Senior Vice President, CFO

www.dxpe.com

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