DXP Enterprises Announces 2016 Third Quarter Results

DXP Enterprises, Inc. (NASDAQ: DXPE) today announced financial results for the third quarter ended September 30, 2016. The following are results for the three and nine months ended September 30, 2016 compared to the three and nine months ended September 30, 2015 and three months ended June 30, 2016, where appropriate. A reconciliation of the non-GAAP financial measures is in the back of this press release.

DXP Enterprises 2016 third quarter financial highlights:

• Sales were $230.0 million for the third quarter of 2016 versus $256.2 million for the second quarter of 2016, a decrease of 10.2 percent. Compared to the third quarter of 2015 sales of $303.1 million, sales were down 24.1 percent.
• Gross profit was $63.8 million, or 27.7 percent of sales for the third quarter of 2016 versus $71.6 million for the second quarter of 2016, or 28.0 percent of sales. Gross profit was $85.7 million or 28.3 percent of sales for the third quarter of 2015.
• Selling, general and administrative (SG&A) expenses were $58.9 million, or 25.6 percent of sales for the third quarter of 2016, compared to $75.1 million or 24.8 percent of sales for the third quarter of 2015. In the second quarter of 2016, SG&A was 24.5 percent of sales or $62.8 million.
• Earnings per diluted share for the third quarter was $0.02 based upon 15.4 million diluted shares, compared to a loss of $3.64 per share in the third quarter of 2015, based on 14.4 million diluted shares. In the second quarter of 2016, earnings per diluted share was $0.34 per share on 15.3 million shares.
• Earnings before interest, taxes, depreciation and amortization (EBITDA) for the third quarter was $12.8 million compared to $11.3 million for the third quarter of 2015, an increase of 6.7 percent. In the second quarter of 2016, EBITDA was $16.3 million.
• Free cash flow (cash flow from operating activities less capital expenditures) for the third quarter was $23.4 million or 183 percent of EBITDA.

David R. Little, Chairman and CEO, remarked, "DXP continues to manage to the current realities and we are proud of the gains our DXPeople have made year-to-date. We are managing costs and producing free cash flow. We also are preparing for the future and the next up cycle, which we believe is coming. We continue to appreciate the hard work and perseverance from all our DXPeople. Total DXP revenues of $230.0 million for the third quarter declined 10.2 percent sequentially. As previously outlined in our earnings pre-release on October 19^th, DXP’s third quarter performance reflects low sales across all of DXP’s business segments during the month of July. August and September sales were more in line with average year-to-date monthly performance but did not make-up for the July aberration. During the third quarter, sales were $152.0 million for Service Centers, $39.8 million for Innovative Pumping Solutions and $38.2 million for Supply Chain Services. We are pleased with our cost containment measures within the segments and at corporate. Free cash flow combined with proceeds from the sale of Vertex and equity issuance, has allowed DXP to pay down debt by over $77 million, subsequent to quarter end. We remain confident in our future and the opportunities ahead for DXP. Again, DXP is poised for earnings leverage and sales growth once the market turns.”

Mac McConnell, CFO, added, "DXP generated $23.4 million in free cash flow during the third quarter and $31.6 million year-to-date. During the quarter, DXP paid down debt by $28.4 million. Total debt outstanding as of September 30, 2016 was $319.3 million. As of November 11, 2016, total debt outstanding was $236.3 million which includes proceeds from the sale of Vertex and the issuance of 2,484,000 shares in conjunction with DXP’s common stock offering announced on October 25, 2016. DXP has prepaid the $30 million mandatory payment due by December 31, 2016 and the $25 million payment due by March 31, 2017. Additionally, DXP has prepaid the $12.5 million amortization payment due on December 31, 2016 and $12.0 million of the $15.625 million amortization payment due on March 31, 2017.”

We will host a conference call regarding 2016 third quarter financial results on the Company’s website (www.dxpe.com) Monday, November 14, 2016 at 4 pm 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 and at www.viavid.net.

DXP Enterprises 2016 third quarter business segment results:

• Service Centers’ revenue for the third quarter was $152.0 million, a decline of 6.1 percent sequentially with an 8.8 percent operating income margin.
• Innovative Pumping Solutions’ revenue for the third quarter was $39.8 million, a decline of 26.7 percent sequentially with a 4.1 percent operating income margin.
• Supply Chain Services’ revenue for the third quarter was $38.2 million, a decline of 4.6 percent sequentially with a 10.3 percent operating margin.

Non-GAAP Financial Measures

DXP supplements reporting of net income (loss) with non-GAAP measurements, including EBITDA, Adjusted EBITDA and free cash flow. This supplemental information should not be considered in isolation or as a substitute for the unaudited GAAP measurements. Additional information regarding EBITDA referred to in this press release is included below under "--Reconciliation of Non-GAAP Measures."

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. 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; ability to obtain needed capital, dependence on existing management, leverage and debt service, domestic or global economic conditions, 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.

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