Presented by: David Little Investor Update Chairman, President & CEO Kent Yee COVID Discussions: May 22, 2020 Senior Vice President & CFO (Quarter Ending March 31, 2020)
F ORWARD L OOKING S TATEMENTS This presentation contains forward-looking statements within the meaning of the U.S. federal securities laws that involve risks and uncertainties. Certain statements contained in this report are not purely historical, including statements regarding our expectations, beliefs, intentions or strategies regarding the future that are forward-looking. These statements include statements concerning projected revenues, expenses, gross profit, income, gross margins or other financial items. All forward-looking statements speak only as of the date of this presentation. You should not place undue reliance on these forward-looking statements. Although we believe our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this presentation are reasonable, we may be unable to achieve these plans, intentions or expectations. These cautionary statements qualify all forward- looking statements attributable to us or persons acting on our behalf. Risks and uncertainties that could cause actual results to differ from those in the forward-looking statements are described in “Risk Factors” and “Forward -Looking Statements” in our Quarterly Reports on Form 10-Q and in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission. Statement Regarding use of Non-GAAP Measures: The Non-GAAP financial measures contained in this presentation (including, without limitation, EBITDA, Adjusted EBITDA, Free Cash Flow, Return on Invested Capital (ROIC) and variations thereof) are not measures of financial performance calculated in accordance with GAAP and should not be considered as alternatives to net income (loss) or any other performance measure derived in accordance with GAAP or as alternatives to cash flows from operating activities as a measure of our liquidity. They should be viewed in addition to, and not as a substitute for, analysis of our results reported in accordance with GAAP, or as alternative measures of liquidity. Management believes that certain non-GAAP financial measures provide a view to measures similar to those used in evaluating our compliance with certain financial covenants under our credit facilities and provide financial statement users meaningful comparisons between current and prior year period results. They are also used as a metric to determine certain components of performance-based compensation. The adjustments and Adjusted EBITDA are based on currently available information and certain adjustments that we believe are reasonable and are presented as an aid in understanding our operating results. They are not necessarily indicative of future results of operations that may be obtained by the Company. 2
COVID-19 U PDATE - - K EY P RIORITIES Prioritizing employee health and safety and partnering with customers and suppliers to address current environment Significant actions to-date include: • Expanded ABL credit facility by $50M • Optional $10M pay down of TLB • Filed $37.5M ATM shelf Employee health and Focused Business Financial Strength safety is paramount Priorities • Ample liquidity and strong • • Classified as “Essential balance sheet Enhanced distancing and Industry” by federal and sanitation protocol • Create lean organization local governments • throughout FY20 with Work from home policies targeted EBITDA goal • enforced; where appropriate Monitoring key indicators daily to scale / manage • Business structured to • Restricted business travel operations deliver free cash flow during • Incorporated shift work • economic down cycles Ability to scale variable schedules to reduce any costs and limited potential impact to DXP discretionary capital expenditures 3
M ANAGING THE P RESENT, K EEPING OUR E YES ON THE F UTURE - - O PERATING IN A D YNAMIC E NVIRONMENT Thoughtfully staying nimble in a tough environment Our Perspective • Stabilize organization • Liquidity Stabilize • Point of view on different scenarios - - weeks, quarter, year and 2 years • Immediate action to cut operating costs - - protect growth and sales capacity • Through cycle review - - reimagine and plan ahead (how has COVID Resilience & changed the world going forward?) Return • Reevaluate capex / investment (priorities / needs in light of COVID) portfolio • Acquisitions 4
E ND M ARKETS H AVE E VOLVED THROUGH THE C YCLES % of sales FY 2008 % of sales FY 2014 % of sales PF FY 2019 Oil & Oil & Oil & Gas Gas Gas 42% 66% 42% Diverse, growing end markets that drive growth in up cycles. . . . . . High quality customer base across dynamic industries Continued geographic expansion and targeted efforts to further diversification Core base in mega trend end markets such as energy, food & beverage and chemical 5 Note: Management estimates. Industrial includes aggregates, agriculture, alternative energy, automotive, building products, military, municipal, pharmaceuticals, pulp & paper, sanitary, steel, telecommunications and wood products.
H OW IS T HIS D OWNTURN / C YCLE D IFFERENT ? Every economic cycle is different and presents new challenges • Virus / pandemic driven not economic but has created lasting / strong economic impacts • Global GDP impact - - magnitude and intensity unforeseen and unprecedented • Global pace of draw down unprecedented • Significant government stimulus and support • Unemployment has / will reach rarely seen highs • Simultaneous oil & gas supply & demand shock 6
W HERE A RE WE AT ? - - WKLY S ALES vs P RIOR Y EAR ($ thousands) Distributor Weekly Pandemic Revenue Index (PRI) – Indian River Consulting Group % change in sales vs same wk prior yr 10 5 4.48 2.55 - (0.91) (5) (10) (15) (13.30) (14.90) (14.77) (14.77) (15.39) (20) (18.92) (21.63) (25) (30) (30.48) (35) Mar 2-6 Mar 9-13 Mar 16-20 Mar 23-27 Mar 30- Apr 6-10 Apr 13-17 Apr 20-24 Apr 27- May 4-8 May 11-15 Apr 3 May 1 7 Note: Indian River Consulting Group is a consulting firm focused on industrial distribution and manufacturing.
W HERE A RE WE AT - - AVG. S ALES PER B USINESS D AY ? ($ thousands) 5,416 5,308 5,302 5,268 5,260 5,152 5,120 5,016 4,925 4,931 4,709 4,669 4,599 4,472 4,349 4,128 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 8
L IQUIDITY AND C ASH P OSITION U PDATE ($ millions, balances as of March 31 st , 2020) Strong balance sheet ensuring ample liquidity for business needs Actions to Enhance Liquidity 236 • 32 Increased ABL to $135M Cash • Sustained capex below FY19 • Leveraging stimulus - - employer SS • Filed ATM 135 Cash and Liquidity Management 132 ABL TLB • Ample access to liquidity sources ABL • Filed $37.5M ATM • Total liquidity (ABL+cash) = $164M • $32M in cash • $132M undrawn ABL with $3M LCs Liquidity FY20 FY21 FY22 FY23 Debt Profile Key Credit Metrics • Flexible and balanced maturity profile with • 2.2x Secured Leverage Ratio no significant near-term maturities 9
R IGHT S TRATEGY- T ODAY: E FFICIENT, A GILE, R ESILIENT Targeted growth and • Swiftly acted to protect our people, and optimal mix in our end support customers Products Markets markets Services Technology • Pivot to cut costs and protect cash • Agility to manage through multiple disruptions Driving Sharpening our • Strong liquidity, better positioned to adapt to efficiency and differentiation productivity uncertainty • Prepared for a post-COVID world. . . Delivering with discipline and Operations Systems consistency 10
S TRATEGIC F RAMEWORK TO D ELIVER S UPERIOR R ETURNS T OMORROW . . . • Making deep and sustainable changes to our Targeted growth and business optimal mix in our end Products Markets markets • Services Continue to shift mix to a more diversified high value portfolio Technology • Target markets where our differentiated capabilities create a win-win relationship Driving Sharpening our • Operational model and emphasis on business efficiency and differentiation excellence to drive higher margins and productivity consistent earnings • Consistent and disciplined in our capital Delivering with allocation plans discipline and Operations Systems • Lead and deliver strong quartile financial consistency performance 11
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