DXP Enterprises' (DXPE) CEO David Little on Q2 2016 Results - Earnings Call Transcript

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DXP Enterprises, Inc. (NASDAQ:DXPE) Q2 2016 Earnings Conference Call August 9, 2016 5:00 PM ET

Executives

Mac McConnell - SVP Finance, CFO

David Little - President and CEO

Analysts

Matt Duncan - Stephens, Inc.

Joe Mondillo – Sidoti & Co.

David Mandell - William Blair & Co.

Ryan Mills - KeyBanc Capital Markets

Operator

Good day and welcome to the DXP Enterprises Incorporated Second Quarter Conference Call. Today's conference is being recorded.

At this time I would like to turn the conference over to Mac McConnell, Senior Vice President of Finance and Chief Financial Officer. Please go ahead, sir.

Mac McConnell

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

Before we 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.

I will begin with a summary of DXP's second quarter 2016 results. David Little will share his thoughts regarding the quarter's results. Then we will open the call to answer questions.

Sales for the second quarter of 2016 decreased $67.5 million or 20.8%, to $256.2 million from $323.7 million for the second quarter of 2015. After excluding second quarter 2016 sales of $6.3 million for Cortech, which was acquired on September 1, 2015, sales for the second quarter decreased $73.8 million or 22.8% on a same-store sales basis. This decrease was primarily the result of decline in sales to customers engaged in the upstream oil and gas market.

Sales by our Service Center segment in the second quarter of 2016 decreased $52.3 million or 24.4%, to $161.8 million compared to $214.1 million for sales -- of sales for the second quarter of 2015. After excluding 2016 Service Center segment sales of $6.3 million from Cortech, Service Center segment sales for the second quarter of 2016 decreased $58.6 million or 27.4% from the second quarter of 2015 on a same-store sales basis. This sales decrease is primarily the result of decreased sales of bearings, pumps, metalworking products, and safety services to customers engaged in the upstream oil and gas markets, or manufacturing equipment for the upstream oil and gas markets. The strength of the U.S. dollar also contributed approximately $1.4 million to the sales decline.

Sales of our Innovative Pumping Solutions products decreased $12.6 million or 18.8% to $54.4 million, compared to $61.9 million for the 2015 second quarter. This decrease was primarily the result of the decline in capital spending by oil and gas producers and related businesses.

Sales for Supply Chain Services decreased $2.6 million or 6.2% to $40 million, compared to $42.7 million for the 2015 second quarter. The decrease in sales is primarily related to decreased sales to customers in the oilfield services, oilfield equipment manufacturing, and trucking industries. When compared to the first quarter of 2016, sales for the second quarter of 2016 increased $2.7 million or 1%. This increase was primarily the result of increased IPS segment sales to customers engaged in the upstream oil and gas and related industries.

Second quarter 2016 sales by our Service Center segment decreased $5.7 million or 3.4% compared to the first quarter of 2016. Second quarter 2016 sales for Supply Chain Services increased $1.4 million or 3.6% compared to the first quarter of 2016. Second quarter 2016 sales of Innovative Pumping Solutions products increased $6.9 million or 14.6% compared to the first quarter of 2016.

Gross profit for the second quarter of 2016 decreased 21.6% from the second quarter of 2015, compared to the 20.8% decrease in sales. Gross profit as a percentage of sales decreased to 27.9% in the second quarter of 2016 compared to 28.2% for the second quarter of 2015. This decrease is the net of an approximately 200-basis-point increase in the gross profit percentage in our IPS segment, a 120-basis-point increase in our supply chain segment, and a 100-basis-point decline in the gross profit percentage in our Service Center segment.

The increase in the gross profit percentage for the IPS segment is primarily the result of a better mix of higher-margin jobs in the second quarter of 2016 compared to the second quarter of 2015. The decline in the gross profit percentage for our Service Center segment is primarily the result of declines in sales of higher-margin safety services and metalworking products. The gross profit percentage of the Supply Chain segment increased as a result of decreased sales of lower-margin products to oilfield service and trucking related customers.

Gross profit as a percent of sales for the second quarter of 2016 increased to 27.9% from 27.1% for the first quarter of 2016. This increase is primarily -- is primarily the net of a 15-basis-point decline in the gross profit percentage in our Service Center segment, an approximate 520-basis-point increase in the gross profit percentage in our IPS segment, and flat gross profit percentage in our supply chain segment. The decline in the gross profit percentage for our Service Center segment is primarily the result of declines in sales of higher-margin pumps, safety services, and metalworking products. The gross profit percentage for the IPS segment increased because of a better mix of jobs in the second quarter compared to the first quarter.

SG&A for the second quarter of 2016 decreased $14.5 million or 18.8% from the second quarter of 2015. After excluding second quarter expenses from Cortech of $1.8 million, SG&A decreased by $16.3 million or 21.1% on a same-store sales basis. The majority of the decline in SG&A is a result of a $9.8 million decrease in payroll, incident compensation, payroll taxes, and 401(k) matching, due primarily to 2015 and 2016 headcount and salary reductions. Additionally, amortization expense declined $1 million and meals and entertainment, vehicle and legal expenses declined $1.3 million on a same-store sales basis.

As a percentage of sales, SG&A increased to 24.5% for the second quarter of 2016, from 23.9% for the second quarter of 2015, as a result of sales decreasing 20.8% while SG&A declined by only 18.8%. SG&A in the second quarter includes approximately $650,000 of severance related costs for employees terminated during the second quarter of 2016.

SG&A for the second quarter of 2016 decreased $18.1 million or 11.4% from the first quarter of 2016. The majority of the decline in SG&A is the result of a $6.5 million decrease in payroll, incident compensation, payroll taxes, 401(k) matching, and health claims, due primarily to 2016 headcount and salary reductions. Additionally, training, meals, travel and vehicle expenses declined. As a percentage of sales, SG&A decreased to 24.5% from 27.9% for the first quarter of 2016, as a result of sales increasing 1% while SG&A declined by 11.4%.

Corporate SG&A for the second quarter of 2016 decreased $2.5 million or 22.1% from the second quarter of 2015 and decreased $1.9 million or 17.3% from the first quarter of 2016. The year-over-year decrease in the sequential quarter-over-quarter decrease was primarily the result of reduced compensation related expenses including lower health claims.

DXP has agreed to terms of a proposed de minimis but the bank group has not completed approval of the amendment. We expect the bank amendment to be finalized by Monday, August 15, at which time we plan to file our 10-Q for the second quarter. The proposed terms provide a financial covenant holiday through and including June 30, 2017 for the consolidated leverage ratio and the fixed charge coverage ratio, increases interest rates by 175 basis points, sets the asset coverage ratio at 0.95 to 1 beginning on June 30, 2016 through March 31, 2018, schedules principal reductions in the amount of the line of credit and term loan, and changes the maturity of the credit facility to March 31, 2018.

Interest expense for the second quarter of 2016 increased 52.4% from the second quarter of 2015 and 15.9% from the first quarter of 2016. This increase was primarily due to the write-off of $600,000 of debt issuance cost during the second quarter, combined with increased interest rates. The write-off of debt issuance costs resulted from the proposed reductions and the revolving credit and term loan commitments and connections with the proposed amendment to our credit facility.

Total long-term debt decreased approximately $17.1 million during the second quarter of 2016. The decrease in debt during the quarter is primarily the result of second quarter operations. As of yesterday morning, our debt balance had decreased by approximately $9 million since June 30. DXP is generating free cash flow and paying down debt. Our bank leverage ratio was 5.94 to 1 at June 30, 2016.

At June 30, our borrowings under the credit facility were at a rate of approximately 3.72%. Under the proposed amendment, our interest rate will increase by an additional 175 basis points as a result of the amendment. If the proposed amendment were in effect today, the interest rate we would be paying would be approximately 5.5%.

Capital expenditures were approximately $1,240,000 for the quarter. Cash on the balance sheet at June 30 was $1,087,000. Accounts receivable and inventory balances were $159,000, $147,000 and $98,397,000, respectively, at June 30, 2016.

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

David Little

Thanks, Mac, and thanks everyone on our conference call today.

I would like to personally thank all of our DXPeople for their creativity and resilience. I also want to thank our supplier partners for their support during these difficult economic times we are both facing over the last couple of years.

Similar to the first quarter, let me begin with a review of market conditions and then summarize our performance in today's environment and provide direction for DXP going forward. Then we will open the call for questions.

As we all remember, the first quarter was a story of two halves. During the second half of the first quarter, oil prices began to rise, removing concerns of an outright collapse. The price is well above the loads reached earlier in February. During the second quarter we experienced less volatility, even though more recently oil prices have begun to pull back to where we started at the beginning of the second quarter.

While the apparent stability was encouraging our customers, they remain cautious with capital spending and capital budgets. We will believe -- we still believe the more important criteria for our customers is stability versus the absolute price of oil. This will require several quarters of consistency before meaningful activity resumes. That said, there is activity in maintenance repair and operating side of business, as well as capital projects, and we are fighting for more than our share every day.

DXP industrial and other end-markets outside of oil and gas appear to trough in the first quarter and were stabilizing at low levels moving along the bottom. Unfortunately, we're still experiencing mixed signals, although we are optimistic that we are moving along the bottom. Overall there will be continued belt tightening and optimism varies depending upon the customer.

With respect to pricing, the environment remained soft due to the lack of inflation and competitive pressures on the project side of DXP. There are more competitors competing for fewer jobs and we have negligible inflation.

Looking at our financial performance, I am pleased with our sales during the second quarter and our collective efforts to cut costs without hurting DXP sales goals and customer service. We moved into a restructuring program to reduce DXP's costs by $25 million or $2.1 million per month in April, and we are seeing the results of these efforts.

Total DXP revenues of $256.2 million for the second quarter was an increase of 1.1% sequentially and 20.9% decline year over year. Organic sales declined 22.8%, with the Cortech acquisition positively contributing $6.3 million in sales for the quarter.

Service Center sales were $161.8 million or sequentially a decline of 3.4%. Innovative Pumping Solution sales were $54.4 million or a sequential increase of 14.6%. And Supply Chain Services sales were $40 million or a sequential increase of 3.6%.

Service Center sales declines were primarily driven by softness in Canada and OEM's focus on serving customers engaged in the upstream oil and gas market. We remain optimistic that with the stabilization of oil prices will come an improved service and repair and maintenance environment. An overall improving environment will provide our network of service and repair facilities and opportunity to offset low product sales with high-margin service and repair revenues. Service Center's operating income increased 32.1% or $12.6 million from the first quarter. This was primarily driven by our efforts to manage costs which had a positive impact to the segment's bottom line.

Innovative Pumping Solutions sales increase was primarily driven by increased throughput by our fabrication facility. Our order intake for this year has basically been flat, with our June backlog is declining. That said, a majority of our customers continue to tightly manage budgets and limit project opportunities, and those that are available are competitive. To optimize our IPS business, we have reduced our labor force and shuttered our golden facility to maintain profitability.

DXP Supply Chain Services saw the bottom line increase year over year sequentially in the second quarter, while the top line increased sequentially from the first quarter. This is mainly due to implementing four new sites and margin enhancements through increasing our product scope with more value-added solutions for our customers and to continue to push for operational excellence applying technology in order to drive costs out of the supply chain. This segment will perform based on how our customers perform.

In terms of gross profit, DXP's gross profit margins increased 81 basis points sequentially and decreased 26 basis points versus the same period in 2015. The second quarter improved gross margins was driven by 521 basis points sequential improvement within Innovative Pumping Solutions. Again this improvement was driven by our utilization rate at our fabrication facilities within IPS. That said, Service Center and Supply Chain Services gross margins decreased 13 basis points and 2 basis points, respectively, from the first quarter of 2016.

SG&A for the second quarter declined $14.6 million or 18.8% from the second quarter of 2015 and $8.1 million or 11.4% from the first quarter of 2016. This reduction positively contributed to operating income margins which were 3.5% in the second quarter, versus a negative of 0.8% in the first quarter. The decline in SG&A is the result of actions discussed during the first quarter and reflect our efforts to optimize the business.

From a cost management perspective, we took a significant amount of cost out of the business by restructuring and cutting costs where practical, without impacting customer service and the customer's experience and expectations. As we move through the year, we will continue to review cost structures, service centers, fabrication facilities, and business performance, and make adjustments as needed.

DXP produced EBITDA of $16.3 million for the second quarter versus $5.7 million for the first quarter. EBITDA as a percent of sales was 6.4% versus 2.3% for the first quarter of 2016.

Earnings per diluted share for the second quarter $0.34 per share, compared to a negative $0.35 per share in Q1 and $0.47 per share in Q2 of 2015. As highlighted in my previous comments, this was driven by a sequential improvement in gross margins and our ability to manage costs in the days -- with days sales volume.

During the second quarter, we produced free cash flow, which allows us to service our debt and improve our capital structure. Our free cash flow for the quarter was $17.7 million.

Going forward we remain encouraged with the moderation we have experienced with the decline in market conditions. Despite the headwinds in our end-markets' constantly changing dynamics, our primary efforts remain on structurally improving our company, controlling our cost, and positioning DXP for profitable growth and increased shareholder value creation in the future.

We appreciate the continued hard work and resourcefulness from our DXPeople as we work through the prolonged oil and gas downturn and industrial softness. We remain confident that we are taking the right actions to position DXP for the future and we are encouraged by the progress made this quarter. Although our end-markets remain volatile and challenging, our second quarter results were directionally and largely in line with our expectations. While we are very much internally focused on cost reduction and structurally optimizing our operations in this environment, and making good progress, we are also positioning DXP for the eventual improvement in our end-markets.

We continue to invest in our people, our sales strategies, and in our customers. This includes profits we make in our PumpWorks Industrial and PumpWorks 610 brands. We are confident in our ability to execute our strategic vision and the long-term outlook for our end-markets, as well as our ability to drive value for our customers and shareholders.

With that, we're now open for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions]

And we will take our first question from Matt Duncan with Stephens Incorporated.

Matt Duncan - Stephens, Inc.

Hey, good afternoon guys.

David Little

Good afternoon, Matt.

Matt Duncan - Stephens, Inc.

So, great job on the cost side this quarter. I know that's been a big focus, and I want to hone in a little bit more there. So you were targeting $6.3 million a quarter, so $2.1 million a month, and you wound up getting a shade of $8 million reduction in SG&A expenses. So, you did better than you were planning to do. Was there anything that was a one-time help to that number? Or is this now kind of a new low level you can build off of going forward? Are there additional cost cuts planned? Just give us an update on how you got to this number that's better than I think you had been expecting and certainly than we had. And how should we think about costs going forward, David?

David Little

So our real goal is to drive EBITDA margins to 6% in a down market. And so that's kind of our commitment as a company. So I think we targeted $26 million, but again our real goal was to reach EBITDA margins with 6-point-something, and which we did and we're pleased with those results.

And everybody has buy-in on that and all our stores are driving those type of margins. You know, when it seems like it was forever that in an up market our goal is to do 10% plus, but in a down market it's hard to deal with that. But as things flatten out, it will be our plan to inch that 6%, north of that, and how that will come about. As you know, the distribution business has leverage so sales go up some percentage then the bottom line goes up double that or so. So we're pretty excited about that.

I don't believe, Mac, you can correct me, but I don't believe there was anything real, real unusual. There might have been something here but then there was also severance pay and, you know, we're not trying to claim any of that stuff. It's all part of doing business. And so we feel good about not hurting customer service, dealing with the volume of business we have, and frankly, trying to fight for every order and provide excellent customer service. We're a customer driven company and we feel good about our abilities to continue to serve our customers. And we have a bunch of champions still working out there and I'm really proud of them.

Matt Duncan - Stephens, Inc.

So, basically we should just expect it to stay around the 6% EBITDA margin, which means you would manage cost lower if revenues were to take down again, you would just manage cost to match the revenue, is kind of the way to think about it going forward, until revenue starts to grow and then it's leveraged to cost structure.

David Little

Right. That's exactly right.

Matt Duncan - Stephens, Inc.

Okay. Looking at the revenues for a minute, so, IPS I think was a surprise here, yet a $7 million sequential uptick. It sounds like maybe that was just you guys got more stuff out the door in the quarter, that the backlog ticked down and order intake is kind of flat. It sounds like maybe this was a quarter where you just kind of got more out the door. So, would it be reasonable to assume that the revenues of that segment are probably going to go down in the third quarter from the second quarter?

David Little

Matt, you must have read my mind, you described it perfect. It's exactly what happened. Our order intake has been pretty consistent, which we're pleased with. We're fighting for every order. It's a doggie dog world out there. But we're doing -- our salesmen are doing a great job, and so we're actually pleased that orders were flat. And then, yes, this just happened to be a quarter where product showed up from the manufacturers and we got things out a little greater than normal. And so -- but at the same time, our, you know, the backlog kind of -- it ate up some of our backlog which declined a little bit.

Matt Duncan - Stephens, Inc.

Maybe it's not fair to say this but I don't know if this is a good characterization or not, did you borrow a little bit of revenue from the third quarter? Was it kind of a timing deal where, you know, go back and look at what first quarter revenues were and that's kind of the run rate? If order intake's been pretty flat, it seems like that first quarter revenue level is kind of the run rate, maybe you borrowed a little bit from the back half here in the 2Q, but that's sort of the right run rate minus whatever you borrowed in the quarter? Is that the way we ought to kind of model it?

David Little

I think you ought to model it that way, but I think what happened, you know, labor and major components are a function of percentage completion. And so I think it was not so much shipments as it was just a lot of materials showed up, and so we were able to get a lot of throughput through the month. So I appreciate the month, I'm glad we had it, but it'll be somewhat lighter in the third and fourth quarter.

Matt Duncan - Stephens, Inc.

Okay. All right. And the last thing and I'll hop back in queue, I certainly appreciate this is a very difficult environment to look into a crystal ball and predict the future. But there's a lot of moving pieces here, right? Rig count's been going up, which I would think would help some on the upstream business. Oil prices did go back down, now they're kind of moving, trending back higher again. It's hard to figure where they're going from here. But if you can maybe talk about how you're thinking about the business through the back half of the year and into 2017, you just talked about IPS, if maybe you could talk a little bit about the Service Center business and the Supply Chain Services as well, kind of frame up your expectations for us and how you see the future playing out here, I think that'd be helpful.

David Little

So, first of all, we do, you know, the market doesn't appreciate it, but we certainly do appreciate the rig count going up. That's helpful. To get the rig count up, oil prices need to be attractive enough in certain parts of the markets. So we know, like everybody else knows, that natural gas is kind of being shipped to Europe and things like that, so the -- we see the Marcellus picking up. We see the Permian really strong and has a low cost structure out there. We see the Bakken and the Eagle Ford not doing quite as well.

But if the price of oil goes up, well, then that incentivizes everybody to drill more and to try to increase their production. And work over rigs get put to work too and etcetera. Well, I'm a believer that the way that the supply and demand is imbalanced and I'm also a believer that it's not going to have a gigantic uptick anytime real, real soon because we have a lot inventory to burn off. I'm a believer and our customers are being more optimistic about 2017. And so what that means is that, in the fourth quarter and even this quarter, we're seeing a lot of quoting activity, and so that's good. That means that they plan on doing things in 2017, and we would certainly take as many purchase orders as we get our hands on.

So I'm more optimistic about the -- our oil and gas future. I'm a little concerned about the strength of the dollar and what that does to our manufacturing sector. So that's, you know, I don't know how that plays out exactly, everybody else is still doing easing and we're thinking about raise of rates. You know, I think in general we're happy that people are saying they've got projects that they've put on the backburner and that they plan on doing those in 2017 because they think they're going to have bigger budgets.

Matt Duncan - Stephens, Inc.

Okay, very helpful. Thank you, David. I'll hop back in queue.

Operator

We will now go to Joe Mondillo with Sidoti & Company.

Joe Mondillo – Sidoti & Co.

Hi guys. How are you doing?

David Little

Good. Hi, Joe.

Joe Mondillo – Sidoti & Co.

Just wondering first off, was there any one-time expenses or income or anything that hit to highlight?

Mac McConnell

I think we may have answered the question earlier, that we, you know, as I said in my comments, we had a $650,000 worth of severance paid in the second quarter. And to the extent we might have had over-accruals or commissions or something that were reversed that probably at most would have offset the $650,000.

Joe Mondillo – Sidoti & Co.

Okay. And then in terms of the margin that you saw at the IPS segment in the second quarter, obviously it was helped by the volume that you saw there, but you also cited maybe there are some mix in there as well. Is there any way to think about maybe a normalized operating margin for IPS in the back half of the year? Ten percent seems a little inflated relative to the last four quarters. So it sounds like that's going to come down. Relative to the cost cuts that you did put in place, are we looking at more of a mid-single-digit type of operating margin that we should think about?

David Little

Yeah, I think they're going to come down a little bit. I would -- but I'm not thinking anything lower than 8%.

Joe Mondillo – Sidoti & Co.

Okay. And then I just have a couple of random things that I was wondering. In terms of CapEx, Mac, could you tell me what the CapEx and the D&A was in the second quarter?

Mac McConnell

CapEx was $1,240,000 for the quarter. Depreciation and amortization for the quarter, depreciation was $2.8 million and the amortization was $4.510 million.

Joe Mondillo – Sidoti & Co.

Okay. And what kind of CapEx are you looking at now, sort of an annual basis run rate? Because you're looking at about, I guess, what, $3 million for the first half of the year. Are we looking at a $6 million number for the year or?

Mac McConnell

We're I guess a $1.7 million for the first quarter and now -- I mean for the first quarter, and $1.2 million, and I would think we'd be kind of in that $1 million a quarter range.

Joe Mondillo – Sidoti & Co.

Okay. And in terms of raw material prices, is that -- I guess IPS would be one area where you'd be affected by that, but you don't sound like you're going to be pressured too much on the operating margin relative to the second quarter. Are you seeing any inflation there on input prices?

Mac McConnell

No. We're not seeing any inflation. Really --

Joe Mondillo – Sidoti & Co.

With steel being up or -- nothing?

Mac McConnell

No. We might -- well, we hope we will see nickel prices go up, because that would help us [inaudible] they had been trending up a little bit. But no, we're not seeing price increases or anything. But we wouldn't see that -- we wouldn't see that this time of the year. Normally that's something we see at the end of the year or first of next year.

Joe Mondillo – Sidoti & Co.

Okay. And was the Canadian wildfire, did that adversely affect you at all with your service business?

David Little

It did, but we had people -- we have an operation at Fort McMurray and we had people that were all okay, which we're thankful for, and we had, you know, they weren't allowed to go to work for a bit of time. But I just tell them no excuses.

Joe Mondillo – Sidoti & Co.

But was there anything I guess significant to the bottom line that I imagine it's not a big portion of your business, but?

David Little

Well, it was a big portion to Canada, but again I don't think we --

Joe Mondillo – Sidoti & Co.

Nothing? Nothing significant?

David Little

Well, it might have been significant to them, but we -- yeah, we can look that up for you.

Joe Mondillo – Sidoti & Co.

Okay. And then lastly, just wondering what the cash balance at the end of the quarter was.

Mac McConnell

$1,087,000.

Joe Mondillo – Sidoti & Co.

Okay, great. Thanks a lot, appreciate it.

Mac McConnell

Thank you, Joe.

Operator

We will now go to David Mandell with William Blair.

David Mandell - William Blair & Co.

Good afternoon. Can you guys talk about average daily sales and how they trended by month? And then maybe comment on what you saw in July?

David Little

Sure. Starting with April, average, you know, the daily sales for April were $4,176,000. In May they were $3,826,000, June $4,007,000. The average for Q2 sales per day was $4,003,000. July is $3,493,000.

David Mandell - William Blair & Co.

All right. So it looks like July is running a little bit below where 2Q was.

David Little

That's correct.

David Mandell - William Blair & Co.

All right. Thanks for taking my question.

Operator

And we have follow-up questions from Matt Duncan with Stephens Incorporated.

Matt Duncan - Stephens, Inc.

Yeah, I'll just piggyback on that one guys, the July rate ticking back down, David. Is that simply the IPS thing we talked about earlier? Is there a tick-down somewhere else in the business?

David Little

We had -- I don't know for sure, Supply Chain Services has the best explanation, I'll give you that. But relating to your question first, is that it was totally across the board. Just almost everybody was down, from the Northeast to the West Coast.

And so I ask the -- the only people I know that really are inside of the customers' operations and what are going on and it just seems like the way that the 4th of July fell, with the 1st being on a Friday and then nobody worked that day and certainly nobody worked on the 4th, and then SCS said that they had facilities that just completely took the week off. So we've gone back to everybody and everybody is, you know, they don't feel like -- they had nothing to do with IPS and it had nothing to do with anything besides just for it to be across the board, across food and beverage, across every kind of industry known to man. I don't know. Do you have anybody else that's kind of saying somewhat the same thing? I'm kind of --

Matt Duncan - Stephens, Inc.

Absolutely, look, we've heard the extended July 4th shutdowns from many of your distribution peers, so it sounds like that's something that was pretty broad-based across the manufacturing sector. So that was kind of the crux of the question, is to see if you were seeing that too.

David Little

Our guys are really saying, hey, it was just an anomaly and --

Matt Duncan - Stephens, Inc.

Well, the obvious follow-up here then, David, is, did it pick up after you got past that July 4th week? I mean, did you go back to -- and ask for some granularity and look at even weekly trends to see if you could see it picking back up, has it picked up into August? Do you have data that maybe backs up the viewpoint that it was just kind of extended July 4 and we're kind of picking back up again after that?

David Little

Well, we're only into nine days here, but I think -- I don't know if we have any trends that we could really point to. But our guys feel like August and September will be at a higher volume.

Mac McConnell

Our sales always start off slower at the beginning of the month and pick up. So we probably saw that in July. We, same thing, the first week or two of sales usually don't necessarily have a big trend or meaning to us, but yes, for the 75% of the revenues that are on our system that we see real time actually what the sales are, they were up 9% in August over July for those first six business days that we've had, but we're not trying to say that tells the same thing.

Matt Duncan - Stephens, Inc.

Okay.

Mac McConnell

-- that they were up 9%.

Matt Duncan - Stephens, Inc.

Yeah. And that's really not all that surprising. I mean, I would expect you to see that, and it's probably going to tick up again in September, that's just kind of a normal distribution pattern, right? Your last month is always your biggest. Your last week's your biggest, your last day is your biggest. It's pretty typical.

Mac McConnell

Right.

Matt Duncan - Stephens, Inc.

So, hopefully that's a sign of maybe some return to normalcy there.

Next question I had is on PumpWorks. You mentioned it a little bit. But David, can you update us on how that's going? Are you, you know, is the manufacturing running smoothly? Are your customers adopting the product? How is it shaking out competitively in the marketplace? Talk to us about how PumpWorks is going if you would.

David Little

Yeah, we're -- it's going excellent. We're kind of reaping some milestones every month. Our costs are going down. Our sales are going up. And I'm now talking about the PumpWorks Industrial piece. And it's, you know, customers to some extent that have bought off the bat, others have been more stubborn. And so we're still after them. The acceptance, I mean it's just a quality pump. It's built better, it runs cooler, it's better designed. It's just a quality pump and everybody really recognizes that. And so after we get past the hurdle that -- well, we've done business with Gules [ph] for 80 years or so. We really, really do good at it. Once they see our processes, our factory, the capabilities we have, it's going really, really well.

That said, the PumpWorks 610 business is getting a little slower. They're sold mostly in midstream. And there's various projects and we're winning orders every day, but that part has slowed down. Of course we've been in that business for about seven years now, so kind of being expected.

Matt Duncan - Stephens, Inc.

Okay. So, customer retention, has it been pretty good for the customers that have used it, are they coming back and reordering?

David Little

Well [inaudible] is -- oh yes, of course. But what I didn't describe to you well was, where we were providing the customer his pumps, the conversion to us of PumpWorks has been -- that's been pretty quickly done, and there's always exceptions, but that's gone really, really well. We're now attacking the manufacturers themselves direct, and so we're -- that's a little harder and a little slower, but we're having success there too.

Matt Duncan - Stephens, Inc.

Okay. I appreciate all the answers, thank you.

Operator

[Operator Instructions]

We will now go to Ryan Cieslak with KeyBanc Capital Markets.

Ryan Mills - KeyBanc Capital Markets

Good afternoon guys. It's Ryan Mills on behalf of Ryan Cieslak.

David Little

Hi, Ryan.

Mac McConnell

Hi, Ryan.

Ryan Mills - KeyBanc Capital Markets

Hey. I believe in your prepared remarks you gave some metrics for the new amendment. I was wondering if you could go over those one more time.

Mac McConnell

The proposed terms provide a financial covenant holiday through and including June 30, 2017 for the consolidated leverage ratio in fixed charge coverage ratio. The interest rate will increase by 175 basis points, essentially to 5% plus LIBOR. It sets the asset coverage ratio, at one time it used to be 1 to 1, now it's -- and in the first quarter it was 0.9 to 1, now it's 0.95 to 1, the asset coverage rate, beginning on June 30, and that goes through March 31, 2018, the maturity of the loan.

There are some scheduled principal reductions in the amount of the line of credit and the term loan. And the maturity of the entire facility has been shortened to March 31, 2018.

Ryan Mills - KeyBanc Capital Markets

All right, thank you. Appreciate it.

Mac McConnell

Sure.

Operator

And if there are no other questions, this will conclude today's conference. We thank you for your participation. And you may now disconnect.

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