DXPE - Earnings call transcript Q4 2020

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Operator

Ladies and gentlemen, thank you for standing by and welcome to DXP Enterprises, Inc. fourth quarter 2020 earnings call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. to conference like to now would hand over the Mr. I Chief Financial Yee, Officer. Kent Please go ahead.

Kent Yee

This Yee results is DXP's Michelle. ending you Thank Kent XXXX. conference quarter fiscal to December fourth XX, QX and call discuss the our for and year XXXX to welcome

is and me Little. CEO, today Joining David our Chairman

by I A to differ you our recorded statements. business SEC discussion filings. results may that are includes we basis many we and call is Before factors forward-looking contained statements. want an on a believe get today's from these those of the may contemplated materially in ongoing started, our detailed material and remind forward-looking being webcast that on effect Actual have

of or new However, events. information that DXP assumes no result to future obligation update a information as

and and we measures. investor will is at included call, XXXX may financial of to and release. presentation are thoughts GAAP fiscal press an summary our now release results. I earnings both present provide of The to to non-GAAP non-GAAP and available GAAP the website this press a his fourth on ir.dxpe.com. accompanying in measures reconciliation over David call A now During our quarter our turn

David Little

conditions prepared thanks the And industry our going will on year-end everyone will comments, conference position current Q&A. open results, on and fourth details quarter remarks. will for Good begin perspective the financial thank key through year-end you, call. after After take we and you forward. Kent my today fourth quarter morning. then And his Kent. joining today I XXXX us to our and with some

and demonstrated through by and DXPeople navigated the by the year. all XXXX compassion know, As the proud many commitment everyone encouraged challenges throughout our and am we I of

unprecedented progress fiscal am pandemic, in the the how we not proud where be, of we and collectively how a growth continued effects XXXX goals and complemented a forward like is started third some have to associated upheaval. virus COVID-XX majority were delivered year. I found these As managing impact of improvements, but the despite we I in it acquisitions. DXP by quarter, and given gross a organic the to XXXX nature of believing move consistency ways and where global the in would are of on margins, going we to the finished areas pipeline robust We there outlined of pandemic the reasonable

year the While began on know, all encouraged we we arms you do perspective and fact motion. society underscored DXP, services signs saw and fiscal and that we understanding slowing provided and DXP, called keep we a take XXXX, essential the essential. mission, around in renewed as here This really language is that products it and business Unfortunately, and saw the need of the legs our products we to and nature then felt in the projects DXP, of COVID-XX a our essential, business. new and by global of wheels optimistic that feet, project going of for at designation we many and we coming. pandemic what us sourcing the services are are that the industry its and

belonging our and for growth could their and key experiences focusing services. all creating they safe in were and people what healthy our and stakeholders, products improving control culture customers our by on from profitable a Our efforts driving outstanding environment our our and

a our for flexible, entrepreneurial that found time DXP QX, better to these than at third upwards fast, million towards suppliers, end the financial the technical This flexible many in day. but while day had and better bottom stay-at-home talent, per and now July the the markets to while little being and different company orders We July, our see had growth of $X.X standpoint, that the to QX, not fast, solutions end was Our for serve. during qualities points customers strategy the capabilities expand day after did From but has that a per fact with the to emphasize of reasonable until year. the sales through local and technology per From sales and continued has climb no really DXPeople. October, there in capabilities see to continued remained COVID-XX always businesses sales providing to opportunities been began a impact to strong sales been and a quarter. our superior our to of that but been large effect deliver DXP we strength, softened lessened value we providing combine of resources, resilient convenient bit and

started results million toward to per moved and end as Our such Today, business see $XXX.X DXP X.X% firming and indicators and $X.XX sequential day. of fourth were sales growth increased quarter reflect also PMI gas million improvements signs eventual in and for business or and or industry our the index showed Oil markets QX recovery. improvement. sequentially metalworking

as Our sequentially one-time improvement unique for we profits will items, and showed also pleasure But dedication to work and quarter and year-over-year quarter, for behalf. grew your Kent as the resilience your the fourth comments. is during or share review It Thank year-end earnings both to during and X,XXX strong the financial in quarter results you and these the year DXPeople our which on always hard continued adjusting were impacted items possible. his by the quarter. some as finishing for my

could be us $XXX cash position flexible and flow we where opportunistic our eyes In combined forward capital XXXX, put a with free keep in terms of structure and million pandemic this of a generated in cycle. flow which cash during we liquidity,

the loan enhance used liquidity when our market a to our quarter, fourth We our B further to the flexibility. term it exposure rebounding a towards term the March fully and loan better economy could position We and off business During completing second We at us in started understand then proactive end we of of enhanced closing end January the end the four year for back the new year financial the in half acquisitions of transactions. successfully picked strong, impacts and our we and two this and acquisitions February up until and year pause refinanced COVID pivot by markets. with then position on took a comes. things from

we all resilient have include excited continued teamwork We Pumps to and Total spend DXPeople extraordinary family. have DXP look companies visit are you, System, to DXPeople. deliver where welcome and find Company, person is great in forward excited This additions been DXP Pumping face DXPeople Repair, sequential and the have to in year-end we System, of To of new Inc. evident future acquisitions results and the growth, financial we APO position to to stakeholders to These well Inc., Pumping of ways & by and closing Corporate Turbo face-to-face. to full time our Equipment for have challenges. Machinery Compressors, us are our Equipment your six that you the can overall and all more of Company. and

ways unique help our all sets in our We capabilities in more to win. to of very which our gives services and us build DXP makes our markets, complementary customers products industry and provide to continue

complement looking that we operational drive with for includes us for constantly stakeholders. opportunities are improve our steadily which all a our strategy performance reviewing believe initiatives progress can share. allow where also We and business We at relentless market to we our will grow

within As grow to we go and existing into continue and ahead the markets. XXXX, excited DXP potential opportunities to about scale has we are and the new

markets we have DXP's and market discussed the our exposure. a goal quarter, all end balanced As during to grow third is

are Our here $X in chemicals, The pumping the Service MRO our end bigger supply services of fiscal diversity and customers the and XXXX were oil solutions. alternate is service the sanitary, centers and of then markets billion. centers and opportunities transportation subject resilient. Supply were refineries as lead Today, DXP markets related requirements military. municipal, and followed innovative food nature safety of beverage, they water wastewater, all allowed within demands. targets way, to remain and impacted and by their point by sales chain chain us supportive COVID were gas and and protocol was energies, to and end

through largest during business segment, within oil yet tied projects work to innovative IPS's to and what solutions problem and a crisis. capital the decline during through sales pumping As the QX is our been ultimately the discussed experienced accentuated demand we has has and QX, gas industry that COVID

of We make cutting been our fabrication sales including on to one shuttering facilities. lower have demand, money expenses

the However, improvements industry start a of indicators. in and recovery see we demand slow do

focused on a in customers and budgets. are strength for we the the IPS below and March, for consistent capital bookings of continue X.X% the indicator year. will average our numbers be terms we XXXX at That strong said, are now are the which cutting backlog, to declines see backlog with February seeing In

go trends environment. we performance managing are with today improvement and strategies, highlights but and extraordinary XXXX further look one sales obviously levels of acquisitions a market focus XXXX but take year to demand EBITDA provided the Our improvements into we and and IPS enhance through organic gross our presented particularly, we XXXX. EBITDA and in XX basis were IPS as opportunities wastewater. main beverage to in focus of at improvement share. and the commentary points IPS percent within over fiscal and midst consistent Overall, highlighted for which overall for have jobs. items our an show a in anticipate continue take food as another granted of with business XX.X%, us the million into a need accentuated year improved and drive given our achieve summary, year areas unique DXP last market our DXP's markets X.X%, within profit and/or a our water proactively one decline the year marketing That volatility, growth other pleased around In year. biofuels, such margins gross societal XX certain also finding upon margins $XX.X where goals the point of to changes We is gross is in in ability goals anything sales produced and to in XXXX, said, being as to to cannot with wanted declining demand. margins, basis that IPS we coming and year-over-year we And and of sales that significant overall to drive the

sales forward by tools to entering facilities. geography, execute value customer for company. going magnitude markets. to end continue proposition, to of greatly to continue the contact believe on customers a we back have our continue as methods challenges, these vary and they pace DXP's Despite type well recovery and We customers use both going customer will of professionals started and as variety traditional our of to our

enhance serving DXP are more about to ways of serves number ensure types to and different our customers customers We that for the and of look opportunities will knowing the we DXP. maximizing

whatever team and have our and We safe, is I make medium focused, the DXP prefers healthy am other to how environment continue matters. environment of care of business approach listening each where very to use the manage everyone customers, to and near customer needs. our tailor summary, our their our will keep especially in proud serve the this customer along to we demand in has always to the and lower support In customer way. performed extraordinary today term

that the macro important all business services, remains visibility products customers of to and challenging period As selfless recover we work I and a their all of to teamwork policy thank persists are fiscal show the as and administration. manage pandemic we cases, timing Like resurgence stakeholders. changes the vaccines engineered distribution remain and customers remotely through positioned It of every would with who this in to coming note passion, deployed as up and any support many, further continues near mass service. impact like in distributor to challenging DXPeople are the we new highly term. outlook from navigate sincerely the of and environment continue to commitment, for well day months. is limited of cognizant who DXP continue But and our vaccine benefit to of a remains are hopeful believe uncertainty to our COVID potential working leading possible

an is have it the and With value all this adversities our the review I collective deliver experienced for more stakeholders. to to and detail. we that, will team tremendous financials a overcome now turn have in to to honor Kent all Kent? We

Kent Yee

the most a quarter. on impacts margin you IPS, to then the thank and as fourth to a fiscal sequential free our of the our Thank you yearly business position, the bottoming term to the of associated services for That trough And assets supply as been of and to we sales Innovative QX in free to the chain and improvement cash closing pumping David. both the from COVID-XX in this $XX.X DXP's cash outlook. sizing by loan have completing financial centers refinancing fourth within results the segments acquisition impacted is XXXX flow service us quarterly given positive year-over-year, focus third strong in sequentially, in within move financial market for see were a our strong XXXX and joining the we had drive B segment feel end we million activity pandemic. by sequential quarter strength acquisitions segment, Service and the performance the following, to QX. with everyone flow supply pertains results. impacts decline SG&A quarter, centers, took finished given strong sales during reductions and slight continuing which negative generation. third by four pretax Overall, review $XX.X from diversity but with past demand good and write-down services quarter, said, a reflects reflect the increase related generation grew successfully COVID-XX. year solutions acquisitions, DXP million QX, Similar six charge fine to it in fiscal chain activity COVID-XX XXXX, business followed pressures gross with impacted

impairment the and goodwill assets related pretax year, this full with associated charges to the the to pandemic. million related of $XX.X in For amounts

for our fourth incurred $X.X in loan the items term they are one-time as year. provides we non-cash with adjust quarter charges these full of remainder Additionally, adjusting the the Throughout associated and a of in following the fourth and and performance the in complete or my relate view the more quarter in guidance the to million I refinancing B. accounting but for unique comments, will appropriate

in see us sales XX.X% Acquisitions fiscal levels comments, election These a contentious unique challenges respectively. were experienced contributed the in and XXXX. his forefront. took before transparent and challenges the while past said, to improvements the million more marvelous reflecting fiscal other from sequential year the a circumstances $XXX.X notable and sequentially DXP navigating trough of us. sales circumstances $X.X honest. in fiscal mentioned supply IPS to and with million, global That for surfaced did increased of and DXP clear vision a job We unique at fourth XX.X% health with to of make keeping Total we what a growth along quarter. rather of a fiscal well X.X% chain these more sales year. years dealt and services, surprised maybe for for a the down billion, will and during Never David As plans, the understood QX. $X that turn have XXXX and XXXX it quarter collectively one whereby mean that executed it safety Total X.X% our and as compared things as many did presented during all pandemic societal had

fiscal contributed in full million for sales $XX.X Turbo For XXXX. day per daily XXX day daily in day. fiscal the million for the quarter year, sales daily $X.X were $X per per Systems. year, and day average million, $X.X XXXX. for $X Pumping million acquisitions including $X.X QX versus full the Average acquisitions, million for per were million Average Adjusting fourth were sales versus per day Machinery

food and all innovative services by segments, decline XX.X%. and include year-over-year, COVID-XX which service In at experienced and municipal sales Regions Supply chain supply declining the markets year-over-year performance center service the and beverage, growth segment Key solutions with in business our by chemicals. followed Rockies. pullback oil least with within services a sites. driving then terms Alaska, end of impacted pumping include declining chain of activity our XX.X% were the three being XX.X% California impacted the business North mining, centers customer and performance gas sales specialty transportation-related reflects and

for time the to customers throughout of with facilities or year COVID closing rationalizing due some SCS temporary periods altogether. dealt Additionally,

call, mentioned in growth to during into our X.X% segment supply sequentially look service grew anticipating quarter XXXX. carry that was and As chain QX our fourth and we sales the will

In David experience solutions, we terms as we backlog of the declines. monitoring as innovative reviewed, pumping are

As been the COVID we accentuated supply all budgets know, that imbalances and and work have IPS has is crisis. industry to gas yet tied capital demand to the the oil and during through

see the a of demand slow in our do recovery However, indicators. we industry and start improvements

our as we XXXX backlog to we As and well QX, monthly XXXX and during these bookings fiscal are averages points fiscal comparing as XXXX. mentioned data review to as

backlog and that trending monthly backlog the XXXX or X.X% upon from average average down now down the Point to the slightly our backlog. backlog we is, XXXX is average XX.X% XXXX but conclusion up today. backlog QX was stands compared based sales average levels the Our here where XXXX is XX.X% are above from

XX.X%, decline total highlights despite Turning margins to demand basis gross which point our a XXXX, IPS in Gross work. improve and that basis able to to by in and within achieving IPS. were within basis IPS XX XX XXX accomplish goals XX DXP's points a over of margins supply services, gross our point year-over-year chain were improvement We XXXX goal margins. followed especially improved the was margins, gross improvement one within for within service basis decline centers. us point

implementation income income, in decreased XXXX. points operating million Compared improved operating $XX.X removal decreased adjusted versus margins given operating points XXX margins solutions income points business in XXXX, all to in chain XXXX centers points XXXX, year-over-year cost, margins the once XX $XX year-over-year operating income XXXX. occurred market pumping combined, again, versus SCS environment. basis primarily Innovative income operating resulting DXP is segments resulting income operating compared to three in of to income. operating in improvement million. points basis million reflects which business the margins in XX basis nine services terms of income. Total XXX $XX.X segment notable in operating declined which the In improved margins Service contracting basis Supply basis

the attack XXXX. of adjusting levels reduced declined current million, reduce with that recent distribution Since reflect for remain reflects demand. will to and be million mindful the Coronavirus respond sales we gain have QX, of passing SG&A These want position share. believe $XX.X with the SG&A $XX.X SG&A ability reductions and we to which market full today from We tomorrow aggressively most level the are the Our to for quickly and respond year our discretionary vaccines a spending. as is who customer the contraction position we those to to in a in associated needs increased us

starting We within our are service this see center segment. to

We are appropriate. and selectively positioning share ourselves to where market grow take

million. to Adjusted X.X%. XXXX Turning adjusted were margins EBITDA. EBITDA $XX.X was Fiscal EBITDA

In this not our in R&D that effective the the significant losses, lot increased terms at received returns past tax benefit the a noise absolute had year as but book XXXX XXXX. XXXX from amended we DXP and of during rate through tax, as well to credits of received associated previously and tax for due associated has impairments levels

rate impacts such, calculate can for attempted EPS As for to have a we used and be these performance year. adjusted to full normalize the XX.X% believe

$XX.X adjusted million. XXXX terms income EPS, for In was of net our our

associated $X.XX the XXXX Adjusting per we with was versus per per and reviewed, $X.XX for rate the and our one-time a for COVID-XX XXXX. share that items per $X.XX XXXX normalization for negative in just of earnings was the share the fiscal diluted earnings and impairments adjusted Our share. unique tax share

was EPS adjusted QX Our in per share. $X.XX

year-end upon Pumps of sheet the the including Compressors, Solutions. from December and sheets in four Total XX, Turning and Corporate the are & Pumping a on we cash Please balance flow. transactions Equipment based of the keep APO standpoint, timing GAAP closing balance to mind, Equipment, and

million. capital, to million working of terms capital the year prior decreased In $XX.X from $XXX.X our working

averages. and XX.X%. the reflects with of we are primarily where our drives a to point our line business us amounted this sales, percentage historical This project to related decline As in the within

sheet cash, terms $XXX.X at million an we In XX. compared the in XX, had to of cash increase million balance XXXX. December is This of December on $XX.X

$XX.X CapEx, $X.X total in in $XXX,XXX. In XXXX CapEx fiscal terms are sales. XXXX, or of fourth of million CapEx was down we Compared million. fiscal the to X.X% quarter was

As CapEx business. of capital our minimal a control and reminder, needs to our ability investment reflects the maintenance

fiscal curtailed began as business XXXX were we we the on on investment growth the we During to in focused and investing liquidity XXXX, focused while and unfold, flexibility.

We fourth flow. during generated second cash Turning we the and as quarter. to quarter free during third flow did operating cash solid the

During for operations had $XX.X respectively. from fiscal XXXX, of cash million and $XXX.X QX million we and flow

invested For Total X debt for XX, refinancing December ratio $XXX we on The fiscal forward. our additional flexibility new reset B. translated and ROIC free At December XXXX The XXXX. million cash was the leverage or in loan fixed ratio at as Return X.X term XXXX, refinancing this to charge X. which was was XX our XX%. capital secured million, into of in outstanding move $XXX provided X.X was loan to reflects B our term and flow. our matures covenant coverage

In ABL undrawn liquidity. liquidity, on have and still remain terms million $XXX.XX we of over in our

In further perspective continue as regions. strengthen from our terms to we an market DXP end two well key These QX. by geographic transactions the end acquisitions as to capabilities will of one diversify closing anticipate of in acquisitions,

and Our is and for acquisition is to different strong our DXP end continues value the markets. pipeline strategy expanding create

fiscal in and DXP sacrificing positioning moving market Collectively, growth This and or experience and and opportunistic opportunities sheet the forward to focused arise. what long opportunities on More a priority growth In our safely the we to at win maximizing us very companies our balance is joining position perspective are to we without today importantly, growing our XXXX. talent when strength flexibility valuable expertise summary, DXP term be did brings and high any financial company. and is tomorrow. from remains

the turn call I will to Now, questions. over

Operator

[Operator Instructions].

Your first question comes from Stephens. from Tommy Moll

line open. Your is

Tommy Moll

questions. my taking for thanks and morning Good

David Little

you. Tommy? it How's going, Thank

Tommy Moll

Going you good good. for Hope all. are things

David Little

Good.

Tommy Moll

any? market. Clearly, some the look were last us gas with in we and start early in WTI there on sitting to a that and of I be share but dislocated would headwinds This year, mid-XXs. you. pace the your be end help kind one you Thank where to us level oil commodity can the of might up the and there, are time if XXXX potential anecdotes points can those extent helpful. What of and forward, the now of activity you there wanted about in here reacceleration

David Little

So, Tommy, gas own and budgets, answered gas you I out think think budgets question the then are There capital your oil the are disconnected I there a forward But oil things. that no and the question. is this little they that has companies kind of cut bottomed put is back. year

So say. you moving progressing I would said, are and better. not what just out-of-control shape encouraged were fact And by are things forward, guess is a are big the getting V we I not we that recovery, That forward. seeing

get nicely. that attractive said second start into you recover. take so more momentum year. and price the improving been has will for slower the think is has And of market But the and we a COVID pretty actually effect activity up oil of very shot the And it to It's half vaccines sure as price. hopefully best yet I that will gain

Tommy Moll

And Thank you market end sticking the maybe you. David there. Thank theme. both with

after ZIP versus it have have you end more to is am priority. just Or take do markets the comfortable split your a sounds you oil and more gas a pick curious, that about few of continues diversification on digested code industrial like on, later? to end of up in will deals you through forward, three, is Going a the rest view what front are I the type and we in? two, think say, future one, it timeframe, deals be some time a in M&A

David Little

No.

really exposure trying get the oil the like I can lower sell are ever we to we that. about than into would really pumps think as gas down same XX%. to it time, hard gets industry, but don't as that We to many at and

are And from in point, of the AIT are that view, some. are area. it, not in both et are technical we they mentioned or But point in We we or X% business. rotating we business of in upstream the view, in cetera. not that not like pump which the equipment Again, a midstream aspect drilling mostly point of

count new the really ultimately a oil equipment. and So that need it is, like or matter But said, part not we midstream then and new drilling whole wells But part they drilling in us are to because gas lot. rig does is are if doesn't I they don't replacing improving.

think long were And Texas. a as so we I we company, founded pump founded as Houston, in were as,

So are going oil get down an to we company if XX%. that, ever when we got big gas to awful we be and

Tommy Moll

I will following look to there. forward the progress

David Little

into Yes. long, I more do concerned, to which company gas I move going I live and and as are much think think as I oil that's wastewater, am by and long some there, think know, much, the our don't Those less markets. green turn way. tomorrow. without have is, be we to don't water not volatility food important stable just there. create we you a of time. going it's to are smart be I for we and it is which will think beverage is, that's going to

can welcome play wind we with work are opportunity quite panels. I solar on play turbines and certainly And that can in turbines. So the play to sure we turbines area. stuff and I and how But we in area. stuff, not there, all in the that the Biofuels, the wind that gearboxes

too. I think are think realistic I but being been responsible we are we So

Tommy Moll

will question then step I back. and Last me for

on daily us, year-to-date a highlight maybe let's average just sales or trajectory for in on, quarter you there? some make the fourth you costs first are if progression you know margin give you trends, there? couple items could the side, aware first just to to of of maybe focusing have of quarter you anything quarter from a sure Just it context terms want the or months we then in got can And say, topline any book. What are

Kent Yee

in still this be have through day sales the indication will just January of terms of in sales November But per in then was October But in million, $X.XX in February $X.XX then day, early million, trends. And in slightly things and million $X.X just it Tommy, business I Kent. $X.XX February. business could December million Yes. is million. we and walk per technically, moving. $X.XX

And the are so business day per sales those trends.

keep a month March typically And in mind, big us. so for is

we as in out what QX a normally we that kind this that's as March. ending is are of towards we month see go uptick is looking hopefully significant So into

have have quarter, taxes, you other terms a QX In SG&A some always question you things. of you is if cost, just higher regarding disproportionately payroll your because will. insurance, have you

while from And business have activity lack typically level to have quarter in an sizing word, business, you of better SG&A SG&A we throughout higher the the so for kind, standpoint, a QX. of been

we back the the at And expect continue see would beginning so year. of to here to

hopefully so will those to we obviously question. continue trends improvements the hold That see are said, way, gross your the encouraged, from if still by and our answers that we move margin in of bottomline. through throughout And XXXX, And XXXX. on success

a QX performing this pandemic at last were year. start In the my addition and of all obviously great even businesses closed is, to all the in see will acquisitions year-end comment performance acquisitions we will and be we those

and And so as to so QX their well. contribute to that forward start we profitability will in look

Tommy Moll

Great. and helpful. I you back. it turn Thank That's all will both

Operator

bring call the us us. This will of today. This today. conference the Instructions]. end joining you [Operator Thank end our session for for the everyone is of to Q&A

disconnect. now may You

DXP Enterprises (DXPE) 9 Mar 212020 Q4 Earnings call transcript