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 | | NEWS RELEASE CONTACT: Kent Yee Senior Vice President, CFO www.dxpe.com THE INDUSTRIAL DISTRIBUTION EXPERTS |
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.
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