DXP was incorporated in Texas in 1996 to be the successor to SEPCO Industries,
Inc., founded in 1908. Since our predecessor company was founded, we have primarily
been engaged in the business of distributing maintenance, repair and operating
(MRO) products, equipment and service to industrial customers. The Company is
organized into three business segments: Service Centers, Supply Chain Services
and Innovative Pumping Solutions.
The industrial distribution market is highly fragmented. Based on 2014 sales as
reported by Industrial Distribution magazine, we were the 20th largest distributor
of MRO products in the United States. Most industrial customers currently purchase
their industrial supplies through numerous local distribution and supply companies.
These distributors generally provide the customer with repair and maintenance
services, technical support and application expertise with respect to one product
category. Products typically are purchased by the distributor for resale directly
from the manufacturer and warehoused at distribution facilities of the distributor
until sold to the customer. The customer also typically will purchase an amount
of product inventory for its near term anticipated needs and store those products
at its industrial site until the products are used.
We believe that the distribution system for industrial products, as described
in the preceding paragraph, creates inefficiencies at both the customer and
the distributor levels through excess inventory requirements and duplicative
cost structures. To compete more effectively, our customers and other users
of MRO products are seeking ways to enhance efficiencies and lower MRO product
and procurement costs. In response to this customer desire, three primary trends
have emerged in the industrial supply industry:
· Industry Consolidation. Industrial customers have reduced the number
of supplier relationships they maintain to lower total purchasing costs, improve
inventory management, assure consistently high levels of customer service and
enhance purchasing power. This focus on fewer suppliers has led to consolidation
within the fragmented industrial distribution industry.
· Customized Integrated Service. As industrial customers focus on their
core manufacturing or other production competencies, they increasingly are demanding
customized integration services, consisting of value-added traditional distribution,
supply chain services, modular equipment and repair and maintenance services
· Single Source, First-Tier Distribution. As industrial customers continue
to address cost containment, there is a trend toward reducing the number of
suppliers and eliminating multiple tiers of distribution. Therefore, to lower
overall costs to the customer, some MRO product distributors are expanding their
product coverage to eliminate second-tier distributors and become a “one
stop source”.
We believe we have increased our competitive advantage through our traditional
fabrication of integrated system pump packages and integrated supply programs,
which are designed to address our customers’ specific product and procurement
needs. We offer our customers various options for the integration of their supply
needs, ranging from serving as a single source of supply for all or specific
lines of products and product categories to offering a fully integrated supply
package in which we assume procurement and management functions, which can include
ownership of inventory, at the customers location. Our approach to integrated
supply allows us to design a program that best fits the needs of the customer.
Customers purchasing large quantities of product are able to outsource all or
most of those needs to us. For customers with smaller supply needs, we are able
to combine our traditional distribution capabilities with our broad product
categories and advanced ordering systems to allow the customer to engage in
one-stop sourcing without the commitment required under an integrated supply
contract.
Most industrial customers currently purchase their MRO products through local
or national distribution companies that are focused on single or unique product
categories. As a first-tier distributor, our network of service and distribution
centers stock more than 60,000 SKUs and provide customers with access to more
than 1,000,000 items. Given our breadth of product and our industrial distribution
customers’ focus around specific product categories, we have become customer
driven experts in five key product categories. As such, our three business segments
are supported by the following five key product categories: rotating equipment,
bearings & power transmission, industrial supplies, metal working and safety
products & services. Each business segment tailors its inventory and leverages
product experts to meet the needs of its local customers.
Key product categories that we offer include:
· Rotating Equipment. Our rotating equipment products include a full
line of centrifugal pumps for transfer and process service applications, such
as petrochemicals, refining and crude oil production; rotary gear pumps for
low- to- medium pressure service applications, such as pumping lubricating oils
and other viscous liquids; plunger and piston pumps for high-pressure service
applications such as disposal of produced water and crude oil pipeline service;
and air-operated diaphragm pumps. We also provide a large variety of pump accessories.
· Bearings & Power Transmission. Our bearing products include several
types of mounted and un-mounted bearings for a variety of applications. The
power transmission products we distribute include speed reducers, flexible-coupling
drives, chain drives, sprockets, gears, conveyors, clutches, brakes and hoses.
· Industrial Supplies. We offer a broad range of industrial supplies,
such as abrasives, tapes and adhesive products, coatings and lubricants, fasteners,
hand tools, janitorial products, pneumatic tools, welding supplies and welding
equipment.
· Metal Working. Our metal working products include a broad range of
cutting tools, abrasives, coolants, gauges, industrial tools and machine shop
supplies.
· Safety Products & Services. We sell a broad range of safety products
including eye and face protection, first aid, hand protection, hazardous material
handling, instrumentation and respiratory protection products. Additionally,
we provide safety services including hydrogen sulfide (H2S) gas protection and
safety, specialized and standby fire protection, safety supervision, training,
monitoring, equipment rental and consulting. Our safety services include safety
supervision, medic services, safety audits, instrument repair and calibration,
training, monitoring, equipment rental and consulting.
We acquire our products through numerous OEMs. We are authorized to distribute
certain manufacturers products only in specific geographic areas. All of our
oral or written distribution authorizations are subject to cancellation by the
manufacturer, some upon little or no notice. For the last three fiscal years,
no manufacturer provided products that accounted for 10% or more of our revenues.
We believe that alternative sources of supply could be obtained in a timely
manner if any distribution authorization were canceled. Accordingly, we do not
believe that the loss of any one distribution authorization would have a material
adverse effect on our business, financial condition or results of operations.