• $97.4 million in cash and cash equivalents
• $220.2 million in sales
• GAAP diluted EPS of $(1.95), excluding non-cash, one-time items, adjusted EPS of $0.16
• Cash flow from operating activities of $30.5 million
• Free cash flow for the quarter of $29.1 million
• Recorded $48.4 million in goodwill impairments and other one-time, non-cash charges

HOUSTON--(BUSINESS WIRE)--DXP Enterprises, Inc. (NASDAQ: DXPE) today announced financial results for the third quarter ended September 30, 2020. The following are results for the three and nine months ended September 30, 2020, compared to the three and nine months ended September 30, 2019. A reconciliation of the non-GAAP financial measures can be found in the back of this press release.

Third Quarter 2020 financial highlights:

• Sales were $220.2 million, compared to $327.2 million for the third quarter of 2019.
• Earnings per diluted share for the third quarter was $(1.95) based upon 17.8 million diluted shares, compared to $0.71 per share in the third quarter of September 30, 2019, based on 18.4 million diluted shares. Excluding non-cash impairment charges of $48.4 million, earnings per diluted share was $0.16 per share, assuming a 22.4 percent tax rate.
• Adjusted EBITDA for the third quarter of 2020 was $13.7 million, versus $13.8 million for the second quarter of 2020 and $28.6 million for the third quarter of 2019. Adjusted EBITDA as a percentage of sales was 6.2 percent versus 5.5 percent for the second quarter of 2020 and 8.7 percent in 2019, respectively.
• Free cash flow (cash flow from operating activities less capital expenditures) for the third quarter of 2020 was $29.1 million compared to $5.3 million for the third quarter of 2019.

David R. Little, Chairman and CEO commented, “Our solid execution and focus in a challenging environment continued to deliver reasonable results with significant progress in the quarter serving our customers, most notably $29.1 million in resilient free cash flow and a continued strong balance sheet. Our cash from operations continues to put us in a position to grow the business when the opportunity presents itself and pay down debt, when appropriate. We are aggressively working opportunities to sharpen our focus, transform our operations and continue investing in growth areas, with the customer at the center of everything we do."

Mr. Little continued, "During the third quarter, we achieved $220.2 million in sales, including $5.1 million from acquisitions. In terms of our business segments for the third quarter, sales were $164.9 million for Service Centers, $21.9 million for Innovative Pumping Solutions and $33.4 million for Supply Chain Services. Although the majority of lockdowns have been easing and economic activity is likely near trough levels, visibility on the economic outlook remains extremely limited. Specifically, the risk of a third wave of virus cases, the reinstitution of select geographic lockdowns, and the risk of lingering high unemployment create an uncertain economic environment that likely persists through the rest of 2020, based upon what we know today. Our results demonstrate a significant and sustainable reset to the power of our business to generate positive earnings and free cash flow and capture market share for our future."

Kent Yee, CFO commented, "Overall, we continue to grow sales in the markets we see strength and manage costs while adjusting to the COVID-19 operating challenges. Similar to our second quarter, we delivered financial results that display our ability to adjust to the current levels of activity. Additionally, like many of our peers, during the third quarter we incurred a pre-tax non-cash impairment and other one-time charges of $48.4 million related to goodwill and certain assets. This reflects the proper accounting treatment given the triggering events of COVID-19 and likely reaching a sales bottom and full impact of COVID during the third quarter. We remain positive around all of our acquisitions and their ability to positively contribute to DXP’s overall business and strategy. We had another strong quarter of free cash flow generation, producing $29.1 million in free cash flow. As of September 30, 2020, we had $97.4 million in cash and cash equivalents on the balance sheet. Our senior leverage was 2.8:1, well under the Q3 covenant limit of 4.5:1."

Financial Strength and Liquidity

Net debt, calculated as total long-term debt, net of cash and cash equivalents, on our balance sheet as of September 30, 2020, was down to $120.1 million compared to $216.4 million at September 30, 2019. As of September 30, 2020, DXP has approximately $211.6 million in liquidity, consisting of $97.3 million in cash on hand and approximately $114.3 million in availability under our ABL facility.

We will host a conference call regarding September 30, 2020 third quarter results on the Company’s website (www.dxpe.com) Friday, November 6, 2020 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 on-line 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, 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.

Business segment financial highlights:

• Service Centers’ revenue for the third quarter was $164.9 million, a decrease of 14.9 percent year-over-year with a 13.4 percent operating income margin.
• Innovative Pumping Solutions’ revenue for the third quarter was $21.9 million, a decrease of 73.4 percent year-over-year with an unfavorable 13.3 percent operating income margin.
• Supply Chain Services’ revenue for the third quarter was $33.4 million, a decrease of 34.8 percent year-over-year with a 8.7 percent operating income margin.