DXP Enterprises' CEO Discusses Q3 2013 Results - Earnings Call Transcript

Oct.30.13 | About: DXP Enterprises, (DXPE)

DXP Enterprises Inc. (NASDAQ:DXPE)

Q3 2013 Earnings Conference Call

October 30, 2013 05:00 PM ET

Executives

Mac McConnell - SVP of Finance, Secretary and CFO

David Little - Chairman, President and CEO

Analysts

Matt Duncan - Stephens Incorporated

Joe Mondillo - Sidoti and Company

Brandon Hemmelgarn - Shaker Investments

Operator

Good day ladies and gentleman. Thank you for standing by. Welcome to the DXP Enterprises Incorporated 2013 Conference Call. During today's presentation all parties will be in a listen only mode. Following the presentation the conference will be opened up for questions. (Operator Instructions). I would like now to turn the conference over to CFO, Mac McConnell. Please go ahead, sir.

Mac McConnell

Thank you. This is Mac McConnell CFO of DXP. Good evening and thank you for joining us. Welcome to DXP's third 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 could 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, but DXP assumes no obligation to update that information. I will begin with a summary of DXP's third quarter 2013 results. David Little will share his thoughts regarding the quarter's results, and then we will be happy to answer questions.

Sales for the third quarter increased 13.7% to $329.7 million from the third quarter of 2012. After excluding third quarter 2013 sales of $28.9 million for businesses acquired, sales for the third quarter increased $10.9 million or 3.8% on a same-store sales basis. This sales increase was primarily the result of improvements in the U.S. economy.

Sales of Innovative Pumping Solutions products increased $22.7 million or 58.9% to $61.1 million, compared to $38.4 million for the 2012 third quarter. After excluding 2013 IPS segment sales of $11.9 million for businesses acquired, IPS segment sales for the third quarter of 2013 increased $10.8 million or 28% from the third quarter of 2012 on a same-store sales basis. This increase resulted from increases in capital spending by our oil and gas and mining related customers.

Sales by our Service Centers segment increased 9.2% to $232.5 million, compared to $212.9 million of sales for the third quarter of 2012. After excluding 2013 Service Centers segment sales of $16.9 million for businesses acquired Service Centers segment sales for the third quarter of 2013 increased $2.7 million or 1.3% from the third quarter of 2012 on a same-store sales basis. This sales increase is primarily the result of increased sales of pumps and pump related products.

Sales for Supply Chain Services decreased $2.5 million or 6.4% to $36.1 million, compared to $38.6 million for the 2012 third quarter. This decrease in sales is primarily related to declines in sales to customers serving the automotive and truck manufacturing markets.

When compared to the second quarter of 2013, sales for the third quarter of 2013 increased $21.8 million or 7.1% sequentially. After excluding third quarter 2013 sales of $9.6 million from businesses acquired, sales for the third quarter increased $12.2 million or 4% on a same-store sales basis.

Third quarter 2013 sales of Innovative Pumping Solutions products increased $8.1 million or 15.4% compared to the second quarter of 2013. Excluding sales on a same-store sales basis from our acquisition of Natpro, IPS sales increased $6.2 million or 11.7% sequentially compared to the second quarter of 2013.

Third quarter 2013 sales by our Service Centers segment increased $14.6 million or 6.7%, compared to the second quarter of 2013. Excluding sales on a same-store sales basis of 7.7 million from acquisitions, Service Centers segment sales increased $6.9 million or 3.2% from the second quarter of 2013.

Third quarter 2013 sales for supply chain services decreased $1 million or 2.6% compared to the second quarter of 2013. This decrease in sales is primarily related to declines in sales to customers serving the automotive and truck manufacturing markets.

Gross profit as a percentage of sales for the third quarter of 2013 decreased to 29.5% from 29.7% for the second quarter of 2013. This decline primarily results from declines in the gross profit percentages for the IPS and Service Centers segments.

SG&A for the third quarter of 2013 increased $11.2 million or 19% from the third quarter of 2012, compared to the 13.7% sales increase. This increase was primarily the result of $6.4 million of SG&A expenses associated with acquisitions completed during 2012 and 2013.

Excluding expenses from businesses acquired on a same-store sales basis, SG&A increased by 8.2%. This increase was primarily related to the 9.2% organic increase in gross profit. As a percentage of sales, SG&A increased to 21.3% from 20.4% for the third quarter of 2012. This increase is primarily related to increase in gross profit percentage, combined with the effect of businesses acquired in 2012 and 2013 having higher SG&A expenses as a percentage of sales.

SG&A for the third quarter of 2013 increased $2 million or 2.9% from the second quarter of 2013. Expenses of businesses acquired on the same-store basis accounted for 1.7 million of this increase. As a percentage of sales, SG&A decreased to 21.3% from 22.2% for the second quarter of 2013, as a result of the sales increasing 7.1% and SG&A increasing 2.9%.

Interest expense for the third quarter of 2013 decreased 29.4% from the third quarter of 2012. This decrease is primarily due to a $700,000 charge in 2012 to fully amortize debt issuance cost related to DXP’s old credit facility.

Interest expense for the third quarter was consistent with the second quarter of 2013. Total long-term debt decreased approximately $11.2 million during the third quarter of 2013, despite spending $19.8 million of cash on acquisitions during this time period. Total long term debt decreased approximately $2.2 million during the first nine months of 2013, despite spending $61.4 million of cash on acquisitions during the same period.

During the first nine months of 2013, the amount available to be borrowed under our credit facility increased approximately $9 million to $118.5 million. This increase was primarily the result of the increased accounts receivable and inventory balances within the asset test as defined by our loan agreement.

Our leverage ratio was 1.81:1 at September 30, 2013. At September 30, our borrowings under the credit facility were an average interest rate of approximately 1.8%. Capital expenditures were approximately $1.9 million for the quarter. Cash on the balance sheet at September 30, 2013, was $8.3 million. Accounts receivable was $196 million and inventory was $110.2 million at September 30, 2013.

Now, I would like to turn the call over to David Little.

David Little

Thanks Mac and thanks to all our participants on our conference call today. I would also like to thank all the DXP people for their efforts and execution of our theme, Battle for Market Share. Given that we experienced the historic flood in Canada, a flood in Colorado, and a federal government that has no [fiscal] [ph] policy, you guys have done a fantastic job. You forecasted improvement in the second half of 2013 and so far you are making your forecast a reality.

Sales increased 7% from Q2 of 2013 to Q3 of 2013 sequentially, of which 4% was organic and 3% inorganic and with a net increase in net income of 19%. Again, I want to thank and welcome all of the acquisitions to our DXP family this year and you are a big part of how we gain market share.

As predicted, the oilfield service companies are starting to do better. Mining especially copper is active. We see signs of municipal business improving especially in Canada. Midstream oil and gas is very active. Food and beverage appears flat and general industries appears to be slightly down.

From a sales and marketing perspective, DXP will continue to battle for market share by making the investments internally and externally to grow our top line. As to the bottom line, EBITDA margins improved in Q3 of 2013 as some of our early investments are beginning to pay off. Expenses are little high by design as we continue to support growth initiatives.

Our return on investment capital continues to be strong, 31% after tax. We continue to be focused on asset management and cash flow with DXP’s debt to leverage ratio improving from 1.94:1 in Q2 to 1.81 in Q3 after spending $19 million on acquisitions.

Our balance is strong and we have substantial dry powder to fund organic and acquisition growth. We believe our focus on growth, productivity and efficiency, combined with our optimism on the acquisition front position us well for the balance of 2013 and beyond.

Allow me now to focus on summarizing the activities within our three business segments, Service Center, Supply Chain Service and Innovative Pumping Solutions. DXP Service Center segment; From Q2 to Q3 2013 all sequentially the Service Center segment sales increased 6.7% and operating income increased 17.9%.

Comparing Q3 2012 versus Q3 2013 sales increased 9.2% and operating income increased 4.3%. Organic sales increased 1.2% in Q3 2013 and 3.2% sequentially. This growth came from business development efforts that resulted in new customers and an uptick in project related business from oil and gas and mining end users.

Moving into the fourth quarter, we are experiencing a tentative purchasing behavior improvement emerging from our oil and gas customers, gearing up for next and inventories seem to be at a low point. We are anticipating this behavior to accumulate into upstream land based drilling to be flat mid-stream activity trend slightly up and downstream activity to remain flat for the remainder of the year.

Food and beverage and mining will continue to maintain a flat presence while the general industry market is trending slightly down. Despite the sluggish economy, our productivity is trending up and we fully expect to grow by taking market share from distributors that lack breadth of technical products and services and technical expertise needed in this highly competitive market.

To remain the best choice for industrial customers, our segment leadership team continues to refine and strengthen our operational and sales excellence programs. Both programs are critical as we continue to have strong organic and acquisition driven growth. In the third quarter an on-boarding workshop was formally launched that is designed to expedite the learning process for new sales professionals. This program provides exposure to all of the DXP segment and resources available to help our customers with technical and business solutions. We would like to formally recognize our sales excellence committee for their successful implementation of this enhanced on-boarding methodology.

It is these types of value added education program that allows our service center sales and marketing channel to maximize relationships that are created at the local level. Our operational excellence program continued to help contribute to high sequential gross margins in the third quarter. We credit a portion of this success to our customer service teams active participation in margin enhancement programs. One such example can be found and improving the adoption rate of our P2 pricing optimization software. This improvement has allowed us to more proficiently price in cross selling activities which in turn has resulted in higher margins to customers that benefit from our super-center concept.

With a combination of deliberate focus on organic growth and leveraging scale and expertise from recent acquisitions, we were able to add two in progress super-centers in the third quarter. Presently we have 34 super-centers and 12 in progress. Four in progress super-centers are projected for completion in the fourth quarter of 2013. Our focus will remain on future strengthening our North American service center platform for the creation of super regions and super-centers that will provide substantial benefits to the industrial customers looking to improve their overall production and financial performance.

Let me give you some data points where service centers in America locations is 129. That is down one because we consolidated a bearing location in Kansas City with a pump and power acquisition on the pump side of the business. We combine those businesses as we move forward to creating super-center. We have 34 service centers in Canada, 34; super-centers in progress, 12; distribution centers, 7; fabrication centers, 10 and we’re in 35 states and all of the provinces.

Supply Chain Services, Q3 ’13 summary. The DXP Supply Chain Service team played well in Q3, despite plant closings and the sale of several motor-coach manufacturing facilities to non-DXP customers. Our bottom line remained healthy with a continued increase in gross margin percentage, which aided in the maintaining of SCS operating income of 8.87% in Q3. DXP Supply Chain Service team secured LOIs on five new locations with contracts to be completed in Q4 and the implementation beginning in Q1 of 2014.

SCS has successfully implemented three additional onsites and two offsite locations in Q3 that will begin generating revenues in Q4. These new accounts further diversify our market from aircraft engines to oil and gas to recreational equipment. We also extended the contracts of two of our large accounts to multi-year agreements. Q3 also showed the renegotiation of large customer agreement to now exclude some OEMs pending, which was growing our topline but hurting our overall margins. We don’t make much on the OEM side.

Additionally, two implementations are scheduled in Q4 that will go live in Q1 and Q2 of 2014. We still have a number of customers under contract that are reluctant or unable to schedule the implementations due to the economic conditions and union related issues. We are still muddling along in this economy with some customers, off-by as much as 54% from 2012.

Feedback from our customers indicate that the aircraft automotive industries are projected to be up in 2014 along with continued increase from our oil and gas industry. We are continually driving operational excellence and sales excellence to over achieve our customers’ expectations.

IPS segment Q4 outlook. Upstream oil and gas and mining sector, land based, quote activity and order rate in this sector continue to remain strong. We were optimistic this profile will remain consistent through Q4. We have experienced steady quote activity all during Q3.

Mining, we have realized significant success in this sector in Q3 2013. We are confident this will continue in Q4. Most of the success continues in the copper mines in the Southwest and in Mexico.

Midstream, this sector continues to be our top-performing sector as it relates to quote activity, orders received and future order potential. The Eagle Ford, the Permian, the Bakken, the Niobrara are providing the majority of our activity. The Marcellus continues to provide opportunities, but not at the rate of the Eagle Ford, Permian and Niobrara Bakken Shale plays.

The majority of the products being quoted and sold in the Bakken and Niobrara are associated with our LACT units being produced in the Golden Fabrication Center. We are supplying equipment from terminal loading and offloading facilities, utilizing centrifugal packages that are being fabricated at 529, Houston and Golden Colorado locations.

Our LACT units being produced in West Texas are being utilized in the Eagle Ford and the Permian shale plays. The Eagle Ford and the Permian shale play activity has a large component associating with our horizontal pumping equipment. The horizontal pump equipment is being utilized in the LACT unit process and pipeline applications. Our centrifugal equipment is being utilized in gathering systems locations, truck loading and offloading systems as well as the booster systems for our horizontal pump applications.

Our high energy multistage equipment is being utilized in the pipeline transportation and booster station application, as well as DXP's offering with our remanufactured high energy multistage equipment. We have experienced an increased interest in our plunger pump applications. These applications are being for disposal injection applications.

We are currently providing delivery of our horizontal pump and centrifugal pump equipment and our remanufacturing high energy equipment with lead times that are very attractive to our customer base. We are very optimistic; our midstream opportunities will remain strong through Q4.

Gulf of Mexico; this sector continues to remain soft. There are a couple of platform upgrade opportunities that have been quoted and have been in the works for a while and show some promise of moving forward. Offshore at Alaska, we were successful in obtaining an order for our initial equipment quote. We are currently working on other opportunities in this area.

Canadian markets, when this whole issues within the local governments that have slowed down the order activity in this sector appear to have been resolved and we are anticipating an upswing in order activity. Oil and gas, this sector is performing similar to the U.S. markets, the major, what you talking about upstream -- the major players are slow to place equipment orders, quote activity and order potential appear strong. Due to the seasonality, open quotes for variable projects are confident we will experience a pickup in order rate in Q4. Again, in that paragraph, I was talking about Canada.

We are optimistic Q4 will remain robust with our product and services supporting the major U.S. oil and gas shale plays in the upstream and midstream markets and the Southwest and Mexico mining markets. Our Canadian markets are showing signs of increased order potential as well. When the Gulf of Mexico decides to wake up, we are poised and ready to respond quickly to support our customers that operate in this market. We are encouraged that we have a few new projects that appear, will turn into order opportunities for us. That’s conclusion of IPS.

In conclusion overall, our theme to Battle for Market Share is so appropriate and we believe we are winning the battle. As we execute our strong strategies to create new super-centers, expand product divisions, increase our breadth of technical products and services, new geographic expansions, market expansions and acquisitions, we have created a customer driven company that is bringing value to our customers, our shareholders, and our employees.

Again, welcome to all our new acquisitions and thanks to everyone for their efforts and being customer driven in executing DXPs growth strategies. We are now open for questions.

Question-and-Answer Session

Operator

Thank you, sir. We will now begin the question-and-answer session. (Operator instructions) Our first question comes from the line of Matt Duncan with Stephens Incorporated. Please go ahead sir.

Matt Duncan - Stephens Incorporated

Good afternoon, guys. Congrats on another great quarter. First question I’ve got David is on the Innovative Pumping Solutions business. You’ve really built some very good momentum in that business this year and I’m trying to get a read on this, should we expect that to continue to go up, can it sort of maintain the $61 million quarterly revenue run rate that you were on there in the 3Q or how should we be thinking about the revenue outlook for that business?

David Little

I believe they are - I believe it remains to be the same or maybe slightly better. We’re optimistic that deliveries and [needs] [ph] and all that we tend to see that particular segment of the business creating a really nice fourth quarter for us historically and that have a lot of good activities, so we feel good about it.

Matt Duncan - Stephens Incorporated

Okay and then looking at the Service Centers business, it was good to see that get back to organic growth again, I guess it was about 2% to 3% year-over-year, organic, do you expect that to continue? It sounds like the energy business is maybe doing a little better for you. Industrial still top but as you look out into future, do you think you can keep that business growing organically?

David Little

When we look at our Service Centers, we have to realize that there is really three parts of it. One part is, they help create opportunities for Supply Chain Services. They don’t get credit for that but that’s what they do. They also help IPS business in fact they sell millions of millions of dollars of IPS business. And that is being driven by, we still lack the infrastructure to move all the product because of all the drilling that’s happened, over the last, frac and stuff and drilling that’s happened over the last three years.

So when we talk about Supply Chains and we talk about our Service Centers, they’re really, from their perspective really doing good and should be complimented because we rob some of their sales they don’t know who’ll get credit for it, so what’s left is maintenance repair and operating. So it’s a pump in the box, it’s a replacement pump, it’s a bearing, it’s a safety, it’s industrial supplies. And so that’s just kind of sort of an aftermarket piece and it’s harder to grow that piece but it also should be more consistent.

So, I think, they feel that they’re projecting things to be good, or good is not a good term because I don’t think things are good until you get the 10% organic growth, but given the environment we’re in, I think they think things were getting slightly better. They projected that they would get slightly better, they did, and so I tend to trust those guys.

Matt Duncan - Stephens Incorporated

Okay, and David last year that business was down sequentially in the fourth quarter which I think is just normal seasonality, should we expect the same type of seasonal downtick this year.

David Little

I think I have to think that way only because of the holidays and all the things that come into it, so, MRO's going to more of a function of how many working days and then a lot of people take vacations then, so I think maintenance, repair, and operating by its nature will normally have a small decline, and then it’s offset by the capital project stuff. Remember that our oil and gas segment people, they get paid by how much oil they produce so the more that they do the projects early in the year versus later in the year creates an environment where they place a lot of orders and want stuff delivered before the end of the year. That's really for them to produce income next year and so we can't guarantee how that plays out but that's how it’s played out the last couple of years, so we’ll see.

Matt Duncan - Stephens Incorporated

Moving on, looking at gross margins, those were kind of in the mid 29s I guess again this quarter and I know last quarter you had said that you were hoping it would bounce back up a little bit towards where it was in the first quarter, is there anything going on there with gross margins, should we still expect to see some improvement down the road there.

David Little

Well, remember one quarter we had a couple of IPS jobs that were lower margins, so those are gone and so margins in the IPS are improving with the exception that we're working hard with our Canadian buddies to realize they need to make a little more money, but the, and then P2 Todd Hamlin comments about the adoption rate of P2, P2s are solving our pricing software and the key there is that the computer tells you, you ought to sell this for $5 and do they sell it for $5 or something higher, then we give them a brownie point, if they sell it for something lower than that then we measure what the adoption rate is, how many times are they in fact using that price or something higher.

So he's referring to the fact that the adoption rate continues to improve so that is helping somewhat mixed IPS jobs versus supply chain services as lower margins so they've got some nice activity that looks like it's in front of them so that will increase the mix for them but probably won't have a big effect on our margins, but nonetheless will have some negative effect on it.

Matt Duncan - Stephens Incorporated

So net, net gross margin can at least stay here but it sounds like IPS margins ought to go up and if that continues to be your fastest growing segment that should pull the whole thing up some, correct?

David Little

Right.

Matt Duncan - Stephens Incorporated

And the last thing from me Mac, just on the tax rate, it's been trending down all year, what tax rate should we be using in our forecast going forward.

Mac McConnell

The same rate that we have for the nine months, if you’re talking about forward being next year?

Matt Duncan - Stephens Incorporated

Yes.

Mac McConnell

2014, I guess I’d take it up a little bit.

Matt Duncan - Stephens Incorporated

37 maybe I mean it’s been trending sort of 36 I guess this year. So 36, 37 somewhere is the number to use?

Mac McConnell

Yes.

Operator

Thank you, (Operator Instructions) and our next question comes from the line of Joe Mondillo with Sidoti and Company, please go ahead sir.

Joe Mondillo - Sidoti and Company

So first question, just regarding the SG&A cost, you mentioned that same store sales were up about little under 4% but the SG&A went up to 8% and David I think you mentioned possibly that could be related to supporting growth initiatives, just wondering if you could expand on that.

David Little

We're actually seeing a little more activity between hiring some season salesmen and of course everybody's fat, dumb and happy then they're not changing jobs, but when they're not making as much money in a soft market then they're more likely to look around. So any time we get the opportunity to hire a technical expert we do it. And course they're supposed to bring a book of business with them and it’s normally about half what they think, but nonetheless we’re happy to get them. So we’re spending money on salesmen, we're still hiring 50 people a month, we just are not throttling back at all on our gross initiatives, even though in good times they would come to fruition much quicker, we're still making progress on but the progress is slower so our expenses are trending up a bit. They are also trending up a little bit because some of the acquisitions we have done have a bit of little higher on the gross margin side and higher on the SG&A side. So that's not a big effect but that's some. And so just a combination of all that, I am not happy when EBITDA margins are below 10%, so I have to look at it and self justify to myself why that's the case and so those kind of things are happening which I am okay with.

Joe Mondillo - Sidoti & Company

And then just to switch gears to IPS; you mentioned that 4Q looks pretty good. I think the lead times in that business average much higher than sort of three to five months. So I was just wandering sort of what is the post 4Q backlog sort of look like?

Mac McConnell

Again I don't think we gave backlog out and if we do I apologize because I don't have that number in front of me.

Joe Mondillo - Sidoti & Company

No I guess I am not looking for an actual number per se, but I was just wondering if you could comment on sort of what kind of work you have in place or in the backlog? How does.

Mac McConnell

Our coating activity is up and our backlog is certainly not down, I don't know that I can speak to it being up substantially or anything but it's certainly is bigger than it's ever been.

Joe Mondillo - Sidoti & Company

Let me ask you this, where do you see sort of the size of this business going to? You are at a 60 million run rate here; we would never even thought of that 18 months ago. Where do you see this business in terms of long term size?

David Little

Well I guess I will say again bigger as long as we’ve got competitors, we haven't killed anybody lately. But it has a lot of capacity that's built in. Golden, we enlarged its facility. Snyder, we enlarged its facility about a year ago, so they have capacity. Houston has a lot of capacity because remember it used to do most, at 90% what it did it in the Gulf of Mexico and that business hasn't come back yet. Now when I say that, I want everybody to understand that drilling in the Gulf of Mexico has come back. But the building of big platforms and where we play, has not come back. So we'll go out there and drill a dozen wells before they ever consider building a platform.

So we're just late in the cycle, because drilling is going on and we’re selling and doing repairs in small step there but none of the big projects because there is really not, besides there is one platform that's being built and it was engineered I guess improperly and so it has had a lot of delays and they are trying to fix it and et cetera. So they haven't needed our type of equipment along that platform yet. So business is coming and it's just a matter of when.

So I think as long as, to answer your question, I think as long as onshore, fracking, infrastructure all of that which looks like that's going to be going on for the next 10 years and then you add offshore gulf and then offshore projects that we do in Africa and around the world, to me it can get a lot bigger.

Joe Mondillo - Sidoti & Company

What is your capacity? Could you give us an update on sort of what that looks like right now? Where you are running at?

Mac McConnell

It's really hard to define; I mean we're at 529 , we're running at something close to 2.5 years?

Joe Mondillo - Sidoti & Company

I guess at the quarterly run rate that you are at, how much upside do you think there is before you have to, are you anywhere as close to hitting full capacity or is there is a lot upside?

David Little

It's just a matter I mean if you have, I am talking to Mac I am sorry, but I’m just explaining to him that, I mean if you have 25 people working in 2.5 shifts, does that limit you from having 50 people that work three shifts? No, so I think there is still, I think if I was just speculating I would think somewhere in the neighborhood but before we have to do some major additions that we would be looking at 30%, 40% growth.

Joe Mondillo - Sidoti & Company

I mean you are seeing 25% growth on an annual basis right now, could we get to a point in 12 to 18 months where you may have to start building capacity if we continue at these growth rates.?

David Little

Yes.

Joe Mondillo - Sidoti & Company

And then just lastly, Mac I was wondering if you could give me the corporate expense and the amortization lines?

Mac McConnell

Sure. They stated in the press release.

Joe Mondillo - Sidoti & Company

Are they? I’m sorry.

Mac McConnell

Corporate expense for the quarter was $9.486 million up from the second quarter that was 8.430 million. Amortization was pretty flat $3,434 million compared to 3,474 million last year. And corporate expenses are up. The primary factors are we made more money, so incentive compensation was up and health claims were up and health insurance, also all the health claims are in corporate. So as we get bigger and have more employees health claims in corporate are going to be more. And that’s how people suddenly get healthier.

Operator

Thank you. And our next question comes from the line of Brandon Hemmelgarn with Shaker Investments. Please go ahead.

Brandon Hemmelgarn - Shaker Investments

Just two questions; if you could discuss how October same store sales compared with our 3.8% year-over-year you saw in Q3 and then second just an update on the M&A pipeline and actives you’re seeing there?

David Little

I think I understood the first question and that is just is what’s October telling us and it’s doing good. There is nothing there that surprises us. And then the M&A pipeline is very full.

Operator

Thank you. Ladies and gentlemen, this concludes the DXP Enterprises Incorporated conference call. Thank you for your participation. You may now disconnect.

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