DXP Enterprises' CEO Discusses Q2 2012 Results - Earnings Call Transcript

DXP Enterprises, Inc. (DXPE)

Q2 2012 Earnings Call

August 1, 2012 5:00 PM ET

Executives

Mac McConnell – SVP, Finance and CFO

David Little – Chairman, President and CEO

Analysts

Matt Duncan – Stephens

Holden Lewis – BB&T Capital Markets

Presentation

Operator

Good afternoon, ladies and gentlemen. Thank you for standing-by. Welcome to the DXP Enterprises Incorporated 2012 Second Quarter Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions)

I would now like to turn the conference over to Mac McConnell, Senior Vice President of Finance and CFO. Please go ahead.

Mac McConnell

Thank you. This is Mac McConnell, CFO of DXP. Good evening and thank you for joining us. Welcome to DXP’s second quarter conference call. David Little, our CEO, will also speak to you and answer your questions.

Before I begin, I want to remind you that today’s discussion will include forward-looking statements. We want to caution you that such statements are predictions and actual events or results can differ materially. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings that DXP assumes no obligation to update that information.

I will begin with a summary of DXP’s second quarter 2012 results. David Little will share his thoughts regarding the quarter’s results then we will be happy to answer your question.

Sales for the second quarter increased 32.5% to $261.9 million from the second quarter of 2011. After excluding second quarter 2012 sales of $39 million for businesses acquired in 2011 and 2012, sales for the second quarter increased 12.8% on a same-store sales basis.

Sales for Supply Chain Services increased 17.2% to $42.6 million, compared to $36.4 million for the 2011 second quarter. Excluding second quarter 2012 SCS segment sales of $4.4 million for acquired businesses SCS segment sales for the second quarter 2012 increased to 5% from 2011 on a same-store sales basis. Sales of Innovative Pumping Solutions products increased 61.3% to $35.2 million compared to $21.8 million for the 2011 second quarter.

Sales by our Service Centers segment increased $44.6 million to $184.1 million compared to $139.5 million of sales for the second quarter of 2011. After excluding 2012 Service Centers segment sales of $34.5 million for businesses acquired in 2011 and 2012, Service Centers segment sales for the second quarter of 2012 increased 7.2% from the second quarter of 2011 on a same-store sales basis.

When compared to the first quarter of 2012, sales for the second quarter of 2012 increased 3.8% after excluding $6.9 million of sales for businesses acquired in 2012 on a same-store sales basis. Sales for the second quarter increased 1.1% from the first quarter. This increase occurred despite the 3.1% decrease in the number of business days in the second quarter compared to the first quarter.

Second quarter 2012 sales for Supply Chain Services increased 12.8% compared to the first quarter of 2012. Second quarter 2012 sales of Innovative Pumping Solutions products decreased 10.8% compared to the first quarter of 2012. Second quarter 2012 sales by our Service Centers segment increased 5.2% compared to the first quarter of 2012.

After excluding $6.9 million of Service Centers sales for businesses acquired in 2012 on a same-store basis, Service Centers segment sales for the second quarter increased 1.2% from the first quarter of 2012.

Gross profit for the second quarter of 2012 increased 33.8% from the second quarter of 2011 compared to the 32.5% increase in sales. Gross profit as a percentage of sales increased to 29.3% in the second quarter of 2012 compared to 29% for the second quarter of 2011. This increase is primarily the result of increased profit margins for the SPS and IPS segment.

Gross profit as a percentage of sales for the second quarter of 2012 increased to 29.3% from 28.3% for the first quarter of 2012 primarily as a result of improved margins in all three segments.

SG&A for the second quarter of 2012 increased $12.1 million or 27.8% from the second quarter of 2011, compared to the 32.5% sales increase. This increase is partially the result of the $8.7 million of SG&A expenses associated with the acquisitions completed in 2011 and 2012 on a same-store sales basis. As a percentage of sales, SG&A decreased to 21.3% from 22.1% for the second quarter of 2011. This decrease is primarily a result of economies of scale.

SG&A for the second quarter of 2012 increased $4.2 million or 8.2% from the first quarter of 2012. This increase is primarily the result of $2.9 million of SG&A expenses associated with the acquisitions completed in 2012 on a same-store sales basis. As a percentage of sales, SG&A increased to 21.3% from 20.4% for the first quarter of 2012, primarily as a result of increased health insurance claims, incentive compensation, travel, charitable donation and professional fees. We incurred approximately $800,000 of legal fees for acquisitions during the second quarter of 2012.

During the third quarter, we will expense approximately $1.5 million of transaction cost associated with the acquisition of HSE. Interest expense for the second quarter of 2012 decreased 25.5% from the second quarter of 2011. This decline is the result of decreased rates on our credit facility. On July 23, 2011, we amended our credit facility. This amendment significantly decreased the interest rate and commitment fees applicable at various leverage ratios from levels in effect before July 23, 2011.

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