DXPE 10-Q Quarterly Report Sept. 30, 2017

DXP ENTERPRISES INC

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10-Q 1 form10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☑

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended September 30, 2017

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from to

Commission file number 0-21513

DXP Enterprises, Inc.

(Exact name of registrant as specified in its charter)

Texas		76-0509661
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

7272 Pinemont, Houston, Texas 77040
(Address of principal executive offices, including zip code)
(713) 996-4700
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an "emerging growth company". See definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emergingy growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐ Accelerated filer ☑ Non-accelerated filer ☐ (Do not check if a smaller reporting company) Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Number of shares of registrant's Common Stock outstanding as of November 9, 2017: 17,391,816 par value $0.01 per share.

PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

DXP ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data) (unaudited)


	September 30, 2017			December 31, 2016
ASSETS
Current assets:
Cash	$	19,473		$	1,590
Restricted Cash		3,614			-
Trade accounts receivable, net of allowance for doubtful accounts of $9,634 in 2017 and $8,160 in 2016		165,235			148,919
Inventories, net		87,720			83,699
Costs and estimated profits in excess of billings on uncompleted contracts		24,191			18,421
Prepaid expenses and other current assets		4,290			2,138
Income taxes recoverable		2,404			2,558
Total current assets		306,927			257,325
Property and equipment, net		55,703			60,807
Goodwill		187,591			187,591
Other intangible assets, net of accumulated amortization of $80,105 in 2017 and $70,027 in 2016		83,045			94,831
Other long-term assets		1,809			1,498
Total assets	$	635,075		$	602,052
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt	$	3,365		$	51,354
Trade accounts payable		81,518			78,698
Accrued wages and benefits		14,735			16,962
Customer advances		4,910			2,441
Billings in excess of costs and estimated profits on uncompleted contracts		3,032			2,813
Other current liabilities		14,726			14,391
Total current liabilities		122,286			166,659
Long-term debt, less current maturities and unamortized debt issuance costs of $10,531 in 2017 and $992 in 2016		239,042			173,331
Deferred income taxes		12,102			9,513
Commitments and contingencies (Note 13)
Equity:
Series A preferred stock, 1/10th vote per share; $1.00 par value; liquidation preference of $112 ($100 per share); 1,000,000 shares authorized; 1,122 shares issued and outstanding		1			1
Series B convertible preferred stock, 1/10 ^th vote per share; $1.00 par value; $100 stated value; liquidation preference of $1,500 ($100 per share); 1,000,000 shares authorized; 15,000 shares issued and outstanding		15			15
Common stock, $0.01 par value, 100,000,000 shares authorized; 17,388,910 at September 30, 2017 and 17,197,380 at December 31, 2016 shares issued		174			172
Additional paid-in capital		152,857			152,313
Retained earnings		127,560			117,396
Accumulated other comprehensive loss		(19,309	)		(18,274	)
Total DXP Enterprises, Inc. equity		261,298			251,623
Noncontrolling interest		347			926
Total equity		261,645			252,549
Total liabilities and equity	$	635,075		$	602,052

The accompanying notes are an integral part of these condensed consolidated financial statements .

DXP ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE OPERATIONS

(in thousands, except per share amounts) (unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016

Sales	$	251,930		$	230,025		$	741,155		$	739,801
Cost of sales		184,967			166,205			540,741			535,560
Gross profit		66,963			63,820			200,414			204,241
Selling, general and administrative expenses		60,453			58,887			175,411			192,461
Income from operations		6,510			4,933			25,003			11,780
Other income, net		(153	)		(251	)		(324	)		(397	)
Interest expense		4,928			4,338			12,573			11,698
Income before provision for income taxes		1,735			846			12,754			479
Provision (benefit) for income taxes		(1,176	)		664			2,880			459
Net income		2,911			182			9,874			20
Net loss attributable to noncontrolling interest		(55	)		(81	)		(360	)		(301	)
Net income attributable to DXP Enterprises, Inc.		2,966			263			10,234			321
Preferred stock dividend		23			23			68			68
Net income attributable to common shareholders	$	2,943		$	240		$	10,166		$	253

Net income	$	2,911		$	182		$	9,874		$	20
Cumulative translation adjustment		830			19			(1,035	)		409
Comprehensive income	$	3,741		$	201		$	8,839		$	429

Basic earnings per share attributable to DXP Enterprises, Inc.	$	0.17		$	0.02		$	0.58		$	0.02
Weighted average common shares outstanding		17,394			14,600			17,402			14,529
Diluted earnings per share attributable to DXP Enterprises, Inc.	$	0.16		$	0.02		$	0.56		$	0.02
Weighted average common shares and common equivalent shares outstanding		18,234			15,440			18,242			15,369

The accompanying notes are an integral part of these condensed consolidated financial statements.

DXP ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (unaudited)

	Nine Months Ended
	September 30,
	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income attributable to DXP Enterprises, Inc.	$	10,234		$	321
Less net loss attributable to non-controlling interest		(360	)		(301	)
Net income		9,874			20
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		7,655			9,070
Amortization of intangible assets		12,943			13,557
Bad debt expense		1,466			1,476
Amortization of debt issuance costs		1,071			673
Write off of debt issuance costs		578			967
Compensation expense for restricted stock		1,392			1,944
Tax loss related to vesting of restricted stock		-			619
Deferred income taxes		2,000			(121	)
Changes in operating assets and liabilities, net of assets and liabilities acquired in business combinations:
Trade accounts receivable		(16,397	)		9,965
Costs and estimated profits in excess of billings on uncompleted contracts		(5,701	)		5,067
Inventories		(3,827	)		5,818
Prepaid expenses and other assets		(2,362	)		(608	)
Trade accounts payable and accrued expenses		(354	)		(8,560	)
Billings in excess of costs and estimated profits on uncompleted contracts		189			(4,171	)
Net cash provided by operating activities		8,527			35,716

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(2,157	)		(3,843	)
Proceeds from sale of property and equipment		-			1,198
Equity method investment contribution		-			(3,214	)
Net cash used in investing activities		(2,157	)		(5,859	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt		728,822			324,229
Principal payments on revolving line of credit and other long-term debt		(701,561	)		(356,497	)
Costs for registration of common shares		-			5,959
Debt issuance fees		(11,188	)		(616	)
Loss for non-controlling interest owners, net of tax		(219	)		(186	)
Dividends paid		(68	)		(68	)
Payment for employee taxes withheld from stock awards		(848	)		(238	)
Tax loss related to vesting of restricted stock		-			(619	)
Net cash provided by (used in) financing activities		14,938			(28,036	)
EFFECT OF FOREIGN CURRENCY ON CASH		189			(85	)
NET CHANGE IN CASH		21,497			1,736
CASH AT BEGINNING OF PERIOD		1,590			1,693
CASH AT END OF PERIOD	$	23,087		$	3,429

The accompanying notes are an integral part of these condensed consolidated financial statements.

DXP ENTERPRISES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - THE COMPANY

DXP Enterprises, Inc. together with its subsidiaries (collectively "DXP," "Company," "us," "we," or "our") are engaged in the business of distributing maintenance, repair, and operating (MRO) products and services to industrial customers. Additionally, DXP provides integrated custom pump skid packages, pump remanufacturing, and manufactures branded private label pumps to industrial customers. The Company is organized into three business segments: Service Centers ("SC"), Supply Chain Services ("SCS"), and Innovative Pumping Solutions ("IPS"). See Note 14 for discussion of the business segments.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING AND BUSINESS POLICIES

Basis of Presentation

The Company's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). The accompanying condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and its variable interest entity ("VIE"). The accompanying unaudited condensed consolidated financial statements have been prepared on substantially the same basis as our annual consolidated financial statements and should be read in conjunction with our annual report on Form 10-K for the year ended December 31, 2016. For a more complete discussion of our significant accounting policies and business practices, refer to the consolidated annual report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2017. The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of results expected for the full fiscal year. In the opinion of management, these condensed consolidated financial statements contain all adjustments necessary to present fairly the Company's condensed consolidated balance sheets as of December 31, 2016 and September 30, 2017 (unaudited), condensed consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2017 and September 30, 2016 (unaudited), and condensed consolidated statements of cash flows for the nine months ended September 30, 2017 and September 30, 2016 (unaudited). All such adjustments represent normal recurring items.

DXP is the primary beneficiary of a VIE in which DXP owns 47.5% of the equity. DXP consolidates the financial statements of the VIE with the financial statements of DXP. As of September 30, 2017, the total assets of the VIE were approximately $5.4 million including approximately $4.9 million of property and equipment compared to $5.2 million of total assets and $5.2 million of property and equipment at December 31, 2016. DXP is the primary customer of the VIE. For the three months ended September 30, 2017 and 2016, consolidation of the VIE increased cost of sales by approximately $0.3 million and $0.2 million, respectively and increased SG&A by approximately $0.3 million and $58 thousand, respectively. For the nine months ended September 30, 2017 and 2016, consolidation of the VIE increased cost of sales by approximately $0.7 million and $0.8 million, respectively and increased SG&A by approximately $0.8 million and $0.2 million, respectively. The Company recognized a related income tax benefit of $33 thousand and $50 thousand, respectively, related to the VIE for the three months ended September 30, 2017 and 2016 and $219 thousand and $130 thousand, respectively, for the nine months ended September 30, 2017 and 2016. At September 30, 2017, the owners of 52.5% of the equity not owned by DXP included a former executive officer and other employees of DXP.

Equity investments in which we exercise significant influence, but do not control and are not the primary beneficiary, are accounted for using the equity method of accounting. During the first quarter of 2016, DXP invested $4.0 million in a related party equity method investment . During the third and fourth quarters of 2016, the investment was reduced to zero by $4.0 million of distributions received from the entity. As of September 30, 2017, a $0.2 million receivable related to the return DXP earned on this investment is included in other current assets.

All intercompany accounts and transactions have been eliminated upon consolidation.

NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS

Standards Effective in 2017 or Earlier

Accounting Changes and Error Corrections. In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-03 ("ASU 2017-03"), Accounting Changes and Error Corrections (Topic 250) and Investments-Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings. This update adds language to the SEC Staff Guidance in relation to ASU 2014-09, ASU 2016-02, and ASU 2016-13. This ASU 2017-03 provides the SEC Staff view that a registrant should consider additional quantitative and qualitative disclosures related to the previously mentioned ASUs in connection with the status and impact of their adoption. This guidance, which was effective immediately, did not have a material impact on our Condensed Consolidated Financial Statements.

Compensation – Stock Compensation. In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The update aims to simplify aspects of accounting for share-based payment award transactions, including (a) income tax consequences, (b) classification of awards as either equity or liabilities, and (c) classification on the statement of cash flows. This pronouncement is effective for financial statements issued for annual periods beginning after December 15, 2016 and interim periods within those annual periods. The Company adopted the ASU January 1, 2017 and it had the following impact on t he Company's Condensed Consolidated Financial Statements :

Topic	Method of Adoption	Impact on Consolidated Financial Statements
Recognize all excess tax benefits and tax deficiencies as income tax benefit or expense	Prospective	The Company recognized $0.2 million and $0.3 million of excess tax benefit in income taxes in the three and nine months ended September 30, 2017, respectively, decreasing the effective tax rate for each period.
Excess tax benefits and deficiencies on the statement of cash flows are classified as an operating activity	Prospective	The Company recognized $0.3 million of excess tax benefit in the nine months ended September 30, 2017 as an operating activity. Prior to the adoption of the ASU 2016-09, the excess tax expense in the nine months ended September 30, 2016 was $0.6 million recognized as a financing activity.
Employee taxes paid when an employer withholds shares for tax-withholding purposes on the statement of cash flows are classified as financing activity	Retrospective	The Company reclassified $0.2 million of employee taxes paid from cash flows from operating activities to cash flows from financing on the Consolidated Statements of Cash Flows in the nine months ended September 30, 2016.
Accounting for forfeitures and tax withholding elections	Prospective	The Company has not changed its accounting policy for forfeitures. There is no significant impact on Consolidated Financial Statements.

Income Taxes. In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes. The update requires entities to present deferred tax assets and liabilities as noncurrent in a classified balance sheet. The update simplifies the current guidance, which requires entities to separately present deferred tax assets and liabilities as current and noncurrent in a classified balance sheet. This pronouncement is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within. The Company adopted this ASU January 1, 2017 and reclassified $9.5 million of current deferred income tax assets from current assets to non-current deferred income tax liabilities on the Condensed Consolidated Balance Sheet as of December 31, 2016.

Inventory. In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330), Simplifying the Measurement of Inventory. The amendments in ASU 2015-11 clarify the subsequent measurement of inventory requiring an entity to subsequently measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation. This ASU applies only to inventory that is measured using the first-in, first-out (FIFO) or average cost method. Subsequent measurement is unchanged for inventory measured using last-in, first-out (LIFO) or the retail inventory method. The amendments in ASU 2015-11 should be applied prospectively and are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company adopted this ASU January 1, 2017 and it did not have a material impact on the Company's Condensed Consolidated Financial Statements.

Statement of Cash Flows. In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230) , Classification of Restricted Cash . The amendments in ASU 2016-18 require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The amounts should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in ASU 2016-18 should be applied retrospectively and are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company early adopted this ASU September 30, 2017 and classified $3.6 million of cash to restricted cash. This cash deposit was required as collateral for letters of credit outstanding under our previously existing credit facility.;

Standards Effective in 2018 or Later

Compensation - Stock Compensation. In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting. An entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The amendments in this ASU are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. The amendments in this ASU should be applied prospectively to an award modified on or after the adoption date. The Company is currently assessing the impact, if any, that this ASU will have upon adoption.

Intangibles-Goodwill and Other. In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU is to simplify how an entity is required to test goodwill for impairment. The effective date of the amendment to the standard is for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company's goodwill impairment testing for the fiscal period beginning January 1, 2020, will follow the provisions of this ASU. This ASU is not expected to have a material impact on the Company's Consolidated Financial Statements.

Business Combinations. In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. The effective date of this ASU is for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This ASU is not expected to have a material impact on the Company's Consolidated Financial Statements.

Statement of Cash Flows. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments. This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The effective date of the amendment to the standard is for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This ASU is not expected to have a material impact on the Company's Consolidated Financial Statements.

Financial Instruments – Credit Losses. In June 2016, the FASB issued ASU 2016-13: Financial Instruments – Credit Losses, which replaces the incurred loss impairment methodology in current US GAAP with a methodology that reflects expected credit losses. The update is intended to provide financial statement users with more useful information about expected credit losses. The amended guidance is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the effect, if any, that the guidance will have on the Company's Consolidated Financial Statements and related disclosures .

Leases. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The update requires organizations that lease assets ("lessees") to recognize the assets and liabilities for the rights and obligations created by leases with terms of more than 12 months. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee remains dependent on its classification as a finance or operating lease. The criteria for determining whether a lease is a finance or operating lease has not been significantly changed by this ASU. The ASU also requires additional disclosure of the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. This pronouncement is effective for financial statements issued for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact that this standard will have on its Consolidated Financial Statements.

Financial Instruments. In January 2016, the FASB issued ASU 2016-01, Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities . This change to the financial instrument model primarily affects the accounting for equity investments, financial liabilities under fair value options and the presentation and disclosure requirements for financial instruments. The effective date for the standard is for fiscal years and interim periods within those years beginning after December 15, 2017. Certain provisions of the new guidance can be adopted early. The Company is evaluating the impact of this ASU.

Revenue Recognition. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which provides guidance on revenue recognition. The core principal of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance requires entities to apply a five-step method to (1) identify the contract(s) with customers, (2) identify the performance obligation(s) in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligation(s) in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. This pronouncement, as amended by ASU 2015-14, is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017.

The Company has evaluated the provisions of the new standard and is in the process of assessing its impact on financial statements, information systems, business processes and financial statement disclosures. We have engaged third party consultants to assist us in assessing our contracts with customers, processes and controls required to address the impact that ASU No. 2014-09 will have on our business. The Company believes that our current plan will enable us to implement our new procedures and controls; and assess the cumulative effect of applying ASU No. 2014-09 at the date of initial application. Based on our overall assessment performed to date, the standard is not expected to have a material impact on the Company's Consolidated Financial Statements.

NOTE 4 - FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

Authoritative guidance for financial assets and liabilities measured on a recurring basis applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis. Fair value, as defined in the authoritative guidance, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative guidance affects the fair value measurement of an investment with quoted market prices in an active market for identical instruments, which must be classified in one of the following categories:

Level 1 Inputs

Level 1 inputs come from quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 Inputs

Level 2 inputs are other than quoted prices that are observable for an asset or liability. These inputs include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from, or corroborated by, observable market data by correlation or other means.

Level 3 Inputs

Level 3 inputs are unobservable inputs for the asset or liability which require the Company's own assumptions.

Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

NOTE 5 – INVENTORIES, NET

The carrying values of inventories are as follows ( in thousands ):

	September 30, 2017		December 31, 2016
Finished goods	$	75,213	$	74,269
Work in progress		12,507		9,430
Inventories, net	$	87,720	$	83,699

NOTE 6 – COSTS AND ESTIMATED PROFITS ON UNCOMPLETED CONTRACTS

Costs and estimated profits in excess of billings on uncompleted contracts arise in the consolidated balance sheets when revenues have been recognized but the amounts cannot be billed under the terms of the contracts. Such amounts are recoverable from customers upon various measures of performance, including achievement of certain milestones, completion of specified units, or completion of a contract.

Costs and estimated profits on uncompleted contracts and related amounts billed were as follows ( in thousands ):

	September 30, 2017		December 31, 2016
Costs incurred on uncompleted contracts	$	31,584	$	25,214
Estimated profits, thereon		3,097		6,274
Total		34,681		31,488
Less: billings to date		13,530		15,864
Net	$	21,151	$	15,624

Such amounts were included in the accompanying condensed consolidated balance sheets for 2017 and 2016 under the following captions ( in thousands ):

	September 30, 2017			December 31, 2016
Costs and estimated profits in excess of billings on uncompleted contracts	$	24,191		$	18,421
Billings in excess of costs and estimated profits on uncompleted contracts		(3,032	)		(2,813	)
Translation adjustment		(8	)		16
Net	$	21,151		$	15,624

NOTE 7 - PROPERTY AND EQUIPMENT, NET

The carrying values of property and equipment are as follows ( in thousands ):


	September 30, 2017			December 31, 2016

Land	$	2,345		$	2,346
Buildings and leasehold improvements		16,668			16,259
Furniture, fixtures and equipment		96,337			94,784
Less – Accumulated depreciation		(59,647	)		(52,582	)
Total property and equipment, net	$	55,703		$	60,807

NOTE 8 - GOODWILL AND OTHER INTANGIBLE ASSETS

The following table presents the changes in the carrying amount of goodwill and other intangible assets during the nine months ended September 30, 2017 ( in thousands ):

	Goodwill		Other Intangible Assets			Total
Balance as of December 31, 2016	$	187,591	$	94,831		$	282,422
Translation adjustment		-		1,157			1,157
Amortization		-		(12,943	)		(12,943	)
Balance as of September 30, 2017	$	187,591	$	83,045		$	270,636

The following table presents the goodwill balance by reportable segment (in thousands) :

	September 30, 2017		December 31, 2016
Service Centers	$	154,473	$	154,473
Innovative Pumping Solutions		15,980		15,980
Supply Chain Services		17,138		17,138
Total	$	187,591	$	187,591

The following table presents a summary of amortizable other intangible assets ( in thousands ):

	As of September 30, 2017							As of December 31, 2016
	Gross Carrying Amount		Accumulated Amortization			Carrying Amount, net		Gross Carrying Amount		Accumulated Amortization			Carrying Amount, net
Customer relationships	$	162,201	$	(79,315	)	$	82,886	$	163,022	$	(68,446	)	$	94,576
Non-compete agreements		949		(790	)		159		1,836		(1,581	)		255
Total	$	163,150	$	(80,105	)	$	83,045	$	164,858	$	(70,027	)	$	94,831

Gross carrying amounts as well as accumulated amortization are partially affected by the fluctuation of foreign currency rates. Other intangible assets are amortized according to estimated economic benefits over their estimated useful lives.

NOTE 9 – LONG-TERM DEBT

Long-term debt consisted of the following ( in thousands ):

	September 30, 2017			December 31, 2016

ABL Revolver	$	-		$	-
Term Loan B		250,000			-
Line of credit		-			147,600
Term loan		-			74,500
Promissory note payable in monthly installments at 2.9% through January 2021, collateralized by equipment		2,938			3,577
Less unamortized debt issuance costs		(10,531	)		(992	)
		242,407			224,685
Less: Current portion		(3,365	)		(51,354	)
Long-term debt less current maturities	$	239,042		$	173,331

Senior Secured Term Loan B:

On August 29, 2017, DXP entered into a six year Senior Secured Term Loan B (the "Term Loan") with an original principal amount of $250 million which amortizes in equal quarterly installments of 0.25% with the balance payable in August 2023, when the facility matures. Subject to securing additional lender commitments, the Term Loan allows for incremental increases in facility size up to an aggregate of $30 million, in minimum increments of $10 million, plus an additional amount such that DXP's secured leverage ratio (as defined under the Term Loan) would not exceed 3.60 to 1.00. We are required to repay the Term Loan in connection with certain asset sales and insurance proceeds, certain debt proceeds and 50% of excess cash flow, reducing to 25%, if our total leverage ratio is no more than 3.00 to 1.00 and 0%, if our total leverage ratio is no more than 2.50 to 1.00. In addition, the Term Loan contains a number of customary restrictive covenants.

The interest rate for the Term Loan was 6.7 % as of September 30, 2017.

The Term Loan B Agreement requires that the company's Secured Leverage Ratio, defined as the ratio, as of the last day of any fiscal quarter of consolidated secured debt (net of restricted cash, not to exceed $30 million) as of such day to EBITDA, beginning with the fiscal quarter ending December 31, 2017, is either equal to or less than as indicated in the table below:

Fiscal Quarter	Secured Leverage Ratio
December 31, 2017	5.75:1.00
March 31, 2018	5.75:1.00
June 30, 2018	5.50:1.00
September 30, 2018	5.50:1.00
December 31, 2018	5.25:1.00
March 31, 2019	5.25:1.00
June 30, 2019	5.00:1.00
September 30, 2019	5.00:1.00
December 31, 2019	4.75:1.00
March 31, 2020	4.75:1.00
June 30, 2020 and each Fiscal Quarter thereafter	4.50:1.00

As of September 30, 2017, the company's consolidated Secured Leverage Ratio was 3.61 to 1.00.

The Term Loan is guaranteed by each of the Company's direct and indirect material wholly owned subsidiaries, other than any of the Company's Canadian subsidiaries and certain other excluded subsidiaries.

The Term Loan is secured by substantially all of the assets of the Company.

ABL Facility

On August 29, 2017, DXP also entered into a five year, $85 million Asset Based Loan and Security Agreement (the "ABL Credit Agreement"). The ABL Credit Agreement provides for asset-based revolving loans in an aggregate principal amount of up to $85.0 million (the "ABL Loans"). The ABL Loans may be increased, in increments of $10.0 million, up to an aggregate of $50.0 million. The facility will mature on August 29, 2022. Interest accrues on outstanding borrowings at a rate equal to LIBOR or CDOR plus a margin ranging from 1.25% to 1.75% per annum, or at an alternate base rate, Canadian prime rate or Canadian base rate plus a margin ranging from 0.25% to 0.75% per annum, in each case, based upon the average daily excess availability under the facility for the most recently completed calendar quarter. Fees ranging from 0.25% to 0.375% per annum are payable on the portion of the facility not in use at any given time.

The obligations of the Borrowers are guaranteed by the Company and its direct and indirect material wholly-owned subsidiaries other than certain excluded subsidiaries.

The ABL Credit Agreement contains a financial covenant restricting the Company from allowing its fixed charge coverage ratio be less than 1.00 to 1.00 during a compliance period, which is triggered when the availability under ABL Facility falls below a threshold set forth in the ABL Credit Agreement.

The ABL Loan is secured by substantially all of the assets of the Company.

Termination of Previously Existing Credit Facility

As set forth above, on August 29, 2017, the Company terminated its previously existing credit agreement and facility and replaced it with the Term Loan and the ABL Credit Agreement. The terminated facility was under the Amended and Restated Credit Agreement, dated as of January 2, 2014, by and among the Company, as borrower, and Wells Fargo Bank, National Association, as issuing lender and administrative agent for other lenders (the "Original Credit Agreement"). This Original Credit Agreement was subsequently amended five times by the First Amendment to Restated Credit Agreement dated as of August 6, 2015, Second Amendment to Restated Credit Agreement dated as of September 30, 2015, Third Amendment to Restated Credit Agreement dated as of May 12, 2016, Fourth Amendment to Restated Credit Agreement dated as of August 15, 2016, and Fifth Amendment to Amended and Restated Credit Agreement dated as of November 28, 2016. A description of the material terms of these terminated agreements can be found in the Company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2017.

NOTE 10 – INCOME TAXES

Our effective tax rate from continuing operations was a tax benefit of 67.8% for the three months ended September 30, 2017 compared to a tax expense of 78.5% for the three months ended September 30, 2016. Compared to the U.S. statutory rate for the three months ended September 30, 2017, the effective tax rate was increased by state taxes and nondeductible expenses. The effective tax rate was decreased by lower income tax rates on income earned in foreign jurisdictions, the change in valuation allowance recorded against deferred tax assets, and research and development tax credits. Compared to the U.S. statutory rate for the three months ended September 30, 2016, the effective tax rate was increased by state taxes and nondeductible expenses.

Our effective tax rate from continuing operations was a tax expense of 22.6% for the nine months ended September 30, 2017 compared to a tax expense of 95.8% for the nine months ended September 30, 2016. Compared to the U.S. statutory rate for the nine months ended September 30, 2017, the effective tax rate was increased by state taxes and nondeductible expenses. The effective tax rate was decreased by lower income tax rates on income earned in foreign jurisdictions, the change in valuation allowance recorded against deferred tax assets, and research and development tax credits. Compared to the U.S. statutory rate for the nine months ended September 30, 2016, the effective tax rate was increased by state taxes and nondeductible expenses.

NOTE 11 - STOCK-BASED COMPENSATION

Restricted Stock

Under the restricted stock plans approved by our shareholders, directors, consultants and employees were awarded shares of DXP's common stock. The shares of restricted stock granted to employees and that are outstanding as of September 30, 2017 vest in accordance with one of the following vesting schedules: 100% one year after date of grant; 33.3% each year for three years after the date of grant; 20% each year for five years after the grant date; or 10% each year for ten years after the grant date. The shares of restricted stock granted to non-employee directors of DXP vest one year after the grant date. The fair value of restricted stock awards was measured based upon the closing prices of DXP's common stock on the grant dates and is recognized as compensation expense over the vesting period of the awards. Once restricted stock vests, new shares of the Company's stock are issued. At September 30, 2017, 401,223 shares were available for future grants.

Changes in restricted stock for the nine months ended September 30, 2017 were as follows:

	Number of Shares			Weighted Average Grant Price
Non-vested at December 31, 2016		143,380		$	26.76
Granted		18,672		$	34.07
Forfeited		(298	)	$	59.60
Vested		(79,853	)	$	25.14
Non-vested at September 30, 2017		81,901		$	29.88

Compensation expense, associated with restricted stock, recognized in the nine months ended September 30, 2017 and 2016 was $1.4 million and $1.9 million, respectively. Related income tax benefits recognized in earnings for the nine months ended September 30, 2017 and 2016 were approximately $0.6 million and $0.6 million, respectively. Unrecognized compensation expense under the Restricted Stock Plan at September 30, 2017 and December 31, 2016 was $1.9 million and $2.7 million, respectively. As of September 30, 2017, the weighted average period over which the unrecognized compensation expense is expected to be recognized is 17.4 months.

NOTE 12 - EARNINGS PER SHARE DATA

Basic earnings per share is computed based on weighted average shares outstanding and excludes dilutive securities. Diluted earnings per share is computed including the impacts of all potentially dilutive securities.

The following table sets forth the computation of basic and diluted earnings per share for the periods indicated ( in thousands, except per share data ):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Basic:
Weighted average shares outstanding		17,394		14,600		17,402		14,529
Net income attributable to DXP Enterprises, Inc.	$	2,966	$	263	$	10,234	$	321
Convertible preferred stock dividend		23		23		68		68
Net income attributable to common shareholders	$	2,943	$	240	$	10,166	$	253
Per share amount	$	0.17	$	0.02	$	0.58	$	0.02

Diluted:
Weighted average shares outstanding		17,394		14,600		17,402		14,529
Assumed conversion of convertible preferred stock		840		840		840		840
Total dilutive shares		18,234		15,440		18,242		15,369
Net income attributable to common shareholders	$	2,943	$	240	$	10,166	$	253
Convertible preferred stock dividend		23		23		68		68
Net income attributable to DXP Enterprises, Inc. for diluted earnings per share	$	2,966	$	263	$	10,234	$	321
Per share amount	$	0.16	$	0.02	$	0.56	$	0.02

NOTE 13 - COMMITMENTS AND CONTINGENCIES

From time to time, the Company is a party to various legal proceedings arising in the ordinary course of business. While DXP is unable to predict the outcome of these lawsuits, it believes that the ultimate resolution will not have, either individually or in aggregate, a material adverse effect on DXP's consolidated financial position, cash flows, or results of operations.

NOTE 14 - SEGMENT REPORTING

The Company's reportable business segments are: Service Centers, Innovative Pumping Solutions and Supply Chain Services. The Service Centers segment is engaged in providing maintenance, MRO products, equipment and integrated services, including logistics capabilities, to industrial customers. The Service Centers segment provides a wide range of MRO products in the rotating equipment, bearing, power transmission, hose, fluid power, metal working, fastener, industrial supply, safety products and safety services categories. The Innovative Pumping Solutions segment fabricates and assembles custom-made pump packages, remanufactures pumps and manufactures branded private label pumps. The Supply Chain Services segment provides a wide range of MRO products and manages all or part of a customer's supply chain, including warehouse and inventory management.

The high degree of integration of the Company's operations necessitates the use of a substantial number of allocations and apportionments in the determination of business segment information. Sales are shown net of intersegment eliminations.

The following table sets out financial information related to the Company's segments ( in thousands ):

	For the Three Months Ended September 30,
	2017								2016
	SC		IPS		SCS		Total		SC		IPS			SCS		Total
Sales	$	160,863	$	51,027	$	40,040	$	251,930	$	152,018	$	39,830		$	38,177	$	230,025
Amortization		2,262		1,803		271		4,336		2,292		1,956			271		4,519
Income (loss) from operations		13,288		35		3,711		17,034		11,053		(326	)		3,658		14,385
Income from operations, excluding amortization	$	15,550	$	1,838	$	3,982	$	21,370	$	13,345	$	1,630		$	3,929	$	18,904


	For the Nine Months Ended September 30,
	2017								2016
	SC		IPS		SCS		Total		SC		IPS		SCS		Total
Sales	$	474,324	$	144,555	$	122,276	$	741,155	$	481,352	$	141,614	$	116,835	$	739,801
Amortization		6,738		5,393		812		12,943		6,871		5,874		812		13,557
Income from operations		40,570		1,710		10,946		53,226		28,608		1,549		10,799		40,956
Income from operations, excluding amortization	$	47,308	$	7,103	$	11,758	$	66,169	$	35,479	$	7,423	$	11,611	$	54,513

The following table presents reconciliations of operating income for reportable segments to the consolidated income before taxes ( in thousands ):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Operating income for reportable segments, excluding amortization	$	21,370		$	18,904		$	66,169		$	54,513
Adjustment for:
Amortization of intangible assets		4,336			4,519			12,943			13,557
Corporate expense		10,524			9,452			28,223			29,176
Income from operations		6,510			4,933			25,003			11,780
Interest expense		4,928			4,338			12,573			11,698
Other income, net		(153	)		(251	)		(324	)		(397	)
Income before income taxes	$	1,735		$	846		$	12,754		$	479

NOTE 15 - SUBSEQUENT EVENTS

We have evaluated subsequent events through the date the interim Condensed Consolidated Financial Statements were issued. There were no subsequent events that required recognition or disclosure unless elsewhere identified in this report.

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management discussion and analysis (MD&A) of the financial condition and results of operations of

DXP Enterprises, Inc. together with its subsidiaries (collectively "DXP," "Company," "us," "we," or "our") for the three and nine months ended September 30, 2017 should be read in conjunction with our previous annual report on Form 10-K and our quarterly reports on Form 10-Q, and the financial statements and notes thereto included in our annual and quarterly reports. The Company's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP").

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this "Report") contains statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Such statements can be identified by the use of forward-looking terminology such as "believes", "expects", "may", "might", "estimates", "will", "should", "could", "would", "suspect", "potential", "current", "achieve", "plans" or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. Any such forward-looking statements are not guarantees of future performance and may involve significant risks and uncertainties, and actual results may vary materially from those discussed in the forward-looking statements or historical performance as a result of various factors. These factors include our ability to satisfy our debt covenants under our credit facilities, our ability to refinance our debt on acceptable terms, the effectiveness of management's strategies and decisions, our ability to implement our internal growth and acquisition growth strategies, general economic and business condition specific to our primary customers, changes in government regulations, our ability to effectively integrate businesses we may acquire, our success in remediating our internal control weaknesses, new or modified statutory or regulatory requirements and changing prices and market conditions, including fluctuating oil and gas prices, and demand for maintenance, repair and operating products, equipment and service, and our ability to obtain financing on favorable terms or amend our credit facilities as needed. This Report identifies other factors that could cause such differences. We cannot assure that these are all of the factors that could cause actual results to vary materially from the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in "Risk Factors", included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2017. We assume no obligation and do not intend to update these forward-looking statements. Unless the context otherwise requires, references in this Report to the "Company", "DXP", "we" or "our" shall mean DXP Enterprises, Inc., a Texas corporation, together with its subsidiaries.

RESULTS OF OPERATIONS

(in thousands, except percentages and per share data)

	Three Months Ended September 30,												Nine Months September 30,
	2017			%			2016			%			2017			%			2016			%
Sales	$	251,930			100.0	%	$	230,025			100.0	%	$	741,155			100.0	%	$	739,801			100.0	%
Cost of sales		184,967			73.4	%		166,205			72.3	%		540,741			73.0	%		535,560			72.4	%
Gross profit		66,963			26.6	%		63,820			27.7	%		200,414			27.0	%		204,241			27.6	%
Selling, general and administrative expense		60,453			24.0	%		58,887			25.6	%		175,411			23.7	%		192,461			26.0	%
Income from operations		6,510			2.6	%		4,933			2.1	%		25,003			3.4	%		11,780			1.6	%
Other income, net		(153	)		-0.1	%		(251	)		-0.1	%		(324	)		0.0	%		(397	)		-0.1	%
Interest expense		4,928			2.0	%		4,338			1.9	%		12,573			1.7	%		11,698			1.6	%
Income before taxes		1,735			0.7	%		846			0.4	%		12,754			1.7	%		479			0.1	%
Provision(benefit) for income taxes		(1,176	)		-0.4	%		664			0.3	%		2,880			0.4	%		459			0.1	%
Net income		2,911			1.2	%		182			0.0	%		9,874			1.3	%		20			0.0	%
Net loss attributable to noncontrolling interest		(55	)		0.0	%		(81	)		0.0	%		(360	)		0.0	%		(301	)		0.0	%
Net income attributable to DXP Enterprises, Inc.	$	2,966			1.2	%	$	263			0.1	%	$	10,234			1.4	%	$	321			0.0	%
Per share amounts attributable to DXP Enterprises, Inc.
Basic earnings per share	$	0.17					$	0.02					$	0.58					$	0.02
Diluted earnings per share	$	0.16					$	0.02					$	0.56					$	0.02

DXP is organized into three business segments: Service Centers ("SC"), Supply Chain Services ("SCS") and Innovative Pumping Solutions ("IPS"). The Service Centers are engaged in providing maintenance, repair and operating ("MRO") products, equipment and integrated services, including technical expertise and logistics capabilities, to industrial customers with the ability to provide same day delivery. The Service Centers provide a wide range of MRO products and services in the rotating equipment, bearing, power transmission, hose, fluid power, metal working, industrial supply and safety product and service categories. The SCS segment provides a wide range of MRO products and manages all or part of our customer's supply chain, including inventory. The IPS segment fabricates and assembles integrated pump system packages custom made to customer specifications, remanufactures pumps and manufactures branded private label pumps. Over 90% of DXP's revenues represent sales of products.

Three Months Ended September 30, 2017 compared to Three Months Ended September 30, 2016

SALES. Sales for the three months ended September 30, 2017 increased $21.9 million, or 9.5%, to approximately $251.9 million from $230.0 million for the prior corresponding period. Sales from Vertex, a business sold on October 1, 2016 accounted for $7.1 million of third quarter 2016 sales. Excluding third quarter 2016 sales of Vertex, on a same store sales basis, sales for the third quarter in 2017 increased by $29.0 million, or 13.0% from the prior corresponding period. This same store sales increase is the result of sales increases in our Service Center, Innovative Pumping Solutions and Supply Chain Services segments of $15.9 million, $11.2 million and $1.9 million. These fluctuations in the sales in our segments are further explained in segment discussions below.

GROSS PROFIT. Gross profit as a percentage of sales for the three months ended September 30, 2017 decreased by approximately 116 basis points from the prior corresponding period. On a same store sales basis, gross profit as a percentage of sales decreased by approximately 69 basis points. The overall decrease in profit percentage, on a same store sales basis is the result of an approximate 186 basis point decrease in the gross profit percentage in our IPS segment, an approximate 61 basis point decrease in the gross profit percentage in our Supply Chain segment and an approximate 16 basis point decrease in the gross profit percentage in our Service Center segment. These fluctuations are explained in the segment discussions below.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expense (SG&A) for the three months ended September 30, 2017 increased by approximately $1.6 million, or 2.7%, to $60.5 million from $58.9 million for the prior corresponding period. Selling, general and administrative expense from a business that was sold accounted for $1.9 million of the third quarter 2016 expense. Excluding third quarter expenses from the business that was sold, on a same store sales basis, SG&A for the quarter increased by $3.5 million, or 6.2%. The overall increase in SG&A, on a same store sales basis, is the result of increased payroll, incentive compensation and related taxes. As a percentage of sales, the third quarter 2017 expense decreased approximately 154 basis points to 24.0% from 25.5% for the prior corresponding period, on a same store sales basis, primarily as a result of the percentage increase in sales exceeding the percentage increase in SG&A.

OPERATING INCOME. Operating income for the third quarter of 2017 increased $1.6 million, to $6.5 million, from $4.9 million in the prior corresponding period. The third quarter 2016 operating income from the business sold in 2016 was $1.1 million. Excluding the operating income from the business sold, on a same store sales basis, operating income increased $2.6 million, or 68.6% from the prior corresponding period. This increase in operating income is primarily related to the increase in sales discussed above.

INTEREST EXPENSE. Interest expense of $4.9 million for the third quarter of 2017 increased 13.6% from the prior corresponding period. The increase is primarily the result of the $0.6 million write-off of debt issuance costs in connection with the termination of the previously existing credit facility during the third quarter of 2017. Increased interest rates were partially offset by a lower outstanding balance.

INCOME TAXES. Our effective tax rate from continuing operations was a tax benefit of 67.8% for the three months ended September 30, 2017 compared to a tax expense of 78.5% for the three months ended September 30, 2016. Compared to the U.S. statutory rate for the three months ended September 30, 2017, the effective tax rate was increased by state taxes and nondeductible expenses. The effective tax rate was decreased by lower income tax rates on income earned in foreign jurisdictions, the change in valuation allowance recorded against deferred tax assets, and research and development tax credits. Compared to the U.S. statutory rate for the three months ended September 30, 2016, the effective tax rate was increased by state taxes and nondeductible expenses.

SERVICE CENTERS SEGMENT. Sales for the Service Centers segment increased by $8.8 million, or 5.8%, for the third quarter of 2017 compared to the prior corresponding period. Excluding $7.1 million of third quarter 2016 Service Centers segment sales from a business sold, Service Centers segment sales for the third quarter in 2016 increased $15.9 million, or 11.0% from the prior corresponding period, on a same store sales basis. This sales increase is primarily the result of increased sales of rotating equipment, industrial supplies and bearings to customers engaged in the upstream oil and gas market or manufacturing equipment for the upstream oil and gas market. Increases and decreases in DXP's sales to oil and gas related customers tend to lag many months behind increases and decreases in crude oil and natural gas prices and the drilling rig count. If crude oil and natural gas prices and the drilling rig count remain at levels experienced during the third quarter of 2017, this level of sales to the upstream oil and gas industry could be expected to continue, or improve, during the remainder of 2017.

As a percentage of sales, the third quarter gross profit percentage for the Service Centers segment decreased approximately 78 basis points but decreased approximately 16 basis points on a same store sales basis, from the prior corresponding period. This decline is primarily the result of a decline in the gross profit percentage for our safety services in Canada. Operating income, on a same store sales basis, for the Service Centers segment increased $3.3 million, or 26.7%. The increase in operating income is primarily the result of the $4.4 million increase in gross profit.

INNOVATIVE PUMPING SOLUTIONS SEGMENT. Sales for the IPS segment increased by $11.2 million, or 28.1 % for the third quarter of 2017 compared to the prior corresponding period. This increase was primarily the result of an increase in capital spending by oil and gas producers and related businesses during 2017 compared to 2016. As a percentage of sales, the third quarter gross profit percentage for the IPS segment decreased approximately 186 basis points from the prior corresponding period primarily as a result of competitive pricing pressures and a reduced level of large, complex, high margin orders in the 2017 period. Additionally, gross profit margins for individual orders for the IPS segment can fluctuate significantly because each order is for a unique package built to customer specifications and subject to varying competition. Operating income for the IPS segment increased $0.2 million, or 12.8%, primarily as a result of the $11.2 million increase in sales discussed above.

SUPPLY CHAIN SERVICES SEGMENT. Sales for the SCS segment increased by $1.9 million, or 4.9%, for the third quarter of 2017 compared to the prior corresponding period. The increase in sales is primarily related to increased sales to customers in the oil and gas related industries. We suspect customers in the oilfield services and oilfield equipment manufacturing industries purchased more from DXP because of the increase in capital spending by oil and gas companies operating in the U.S and Canada. Gross profit as a percentage of sales decreased approximately 61 basis points compared to the prior corresponding period primarily as a result of increased sales of lower margin products to oil and gas related customers. Operating income for the SCS segment increased 1.3% primarily as a result of the 4.9% increase in sales.

Nine Months Ended September 30, 2017 compared to Nine Months Ended September 30, 2016

SALES. Sales for the nine months ended September 30, 2017 increased $1.3 million, or 0.2%, to approximately $741.2 million from $739.8 million for the prior corresponding period. Sales from a business sold in 2016 accounted for $22.7 million of 2016 sales. Excluding the first nine months of 2016 sales of the sold business, on a same store sales basis, sales for the first nine months of 2017 increased by $24.0 million, or 3.4% from the prior corresponding period. This same store sales increase is the result of an increase in our Service Centers, SCS and IPS segments of $15.6 million, $5.4 million and $2.9 million respectively, on a same store sales basis. These fluctuations in the sales in our segments are further explained in segment discussions below.

GROSS PROFIT. Gross profit as a percentage of sales for the nine months ended September 30, 2017 decreased by approximately 57 basis points from the prior corresponding period. On a same store sales basis, gross profit as a percentage of sales increased by approximately 18 basis points. The overall decrease in the profit percentage, on a same store sales basis, is the result of an approximate 208 basis point decrease in the gross profit percentage in our IPS segment and an approximate 69 basis point decrease in gross profit percentage in our Supply Chain segment partially offset by a 53 basis point increase in the gross profit percentage in our Service Centers segment. These fluctuations are explained in the segment discussions below.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expense (SG&A) for the nine months ended September 30, 2017 decreased by approximately $17.1 million, or 8.9%, to $175.4 million from $192.5 million for the prior corresponding period. SG&A from a business that was sold accounted for $6.1 million of the decrease. Excluding the first nine months of SG&A from the business that was sold, on a same store sales basis, SG&A decreased by $10.9 million, or 5.9%. The overall decline in SG&A, on a same store sales basis, is the result of decreased payroll, incentive compensation, related taxes and 401(k) expenses due to headcount and salary reductions and other cost reduction measures primarily implemented near the end of the first quarter of 2016. Additionally, amortization expense declined by $0.6 million, on a same store sales basis. As a percentage of sales, the first nine months of 2017 expense decreased approximately 231 basis points to 23.7% from 26.0% for the prior corresponding period, on a same store sales basis, primarily as a result of the percentage increase in sales exceeding the percentage increase in SG&A.

OPERATING INCOME. Operating income for the nine months ended September 30, 2017 increased $13.2 million, to $25.0 million, from $11.8 million in the prior corresponding period. The operating income from the business sold in 2016 reduced the overall increase in operating income in the amount of $2.9 million. Excluding the operating income from the business sold, on a same store sales basis, operating income increased $16.1 million, or 181.6% from the prior corresponding period. This increase in operating income is primarily related to the decrease in SG&A and increase in gross profit discussed above.

INTEREST EXPENSE. Interest expense for the nine months ended September 30, 2017 increased 7.5% from the prior corresponding period primarily as a result of increased interest rates under our credit facilities.

INCOME TAXES. Our effective tax rate from continuing operations was a tax expense of 22.6% for the nine months ended September 30, 2017 compared to a tax expense of 95.8% for the nine months ended September 30, 2016. Compared to the U.S. statutory rate for the nine months ended September 30, 2017, the effective tax rate was increased by state taxes and nondeductible expenses. The effective tax rate was decreased by lower income tax rates on income earned in foreign jurisdictions, the change in valuation allowance recorded against deferred tax assets, and research and development tax credits. Compared to the U.S. statutory rate for the nine months ended September 30, 2016, the effective tax rate was increased by state taxes and nondeductible expenses.

SERVICE CENTERS SEGMENT. Sales for the Service Centers segment decreased by $7.0 million, or 1.5% for the nine months ended September 30, 2017 compared to the prior corresponding period. Excluding $22.7 million of the first nine months 2016 Service Centers segment sales from a business sold, Service Centers segment sales for the first nine months in 2017 increased $15.6 million, or 3.4% from the prior corresponding period, on a same store sales basis. This sales increase is primarily the result of increased sales of rotating equipment, industrial supplies and bearings to customers engaged in the upstream oil and gas market or manufacturing equipment for the upstream oil and gas market. As a percentage of sales, the nine month period gross profit percentage for the Service Centers increased approximately 3 basis points but increased approximately 53 basis points on a same store sales basis, from the prior corresponding period. This increase in the gross profit percentage is primarily the result of improved margins on sales of bearings and industrial supplies. Operating income for the Service Centers segment increased $14.7 million, or 45.2% on a same store sales basis. The increase in operating income is primarily the result of the reduced SG&A combined with increased gross profit.

INNOVATIVE PUMPING SOLUTIONS SEGMENT. Sales for the IPS segment increased by $2.9 million, or 2.1% for the nine months ended September 30, 2017 compared to the prior corresponding period. This increase is primarily the result of increased capital spending by oil and gas producers and related businesses during the first nine months of 2017 compared to the first nine months of 2016. As a percentage of sales, the nine month period gross profit percentage for the IPS segment decreased approximately 208 basis points from the prior corresponding period primarily as a result competitive pricing pressures and a reduced level of large, complex, high margin orders in in the 2017 period. Additionally, gross profit margins for individual orders for the IPS segment can fluctuate significantly because each order is for a unique package built to customer specifications and subject to varying competition. Operating income for the IPS segment decreased $0.3 million, or 4.3%, primarily as a result of the 208 basis point decrease in the gross profit percentage discussed above, partially offset by a decrease in SG&A.

SUPPLY CHAIN SERVICES SEGMENT. Sales for the SCS segment increased by $5.4 million, or 4.7%, for the nine months ended September 30, 2017 compared to the prior corresponding period. The increase in sales is primarily related to increased sales to customers in the oil and gas industries. We suspect customers in the oilfield services and oilfield equipment manufacturing industries purchased more from DXP because of the increase in capital spending by oil and gas companies operating in the U.S and Canada. Gross profit as a percentage of sales decreased approximately 69 basis points compared to the prior corresponding period primarily as a result of increased sales of lower margin products to oil and gas related customers. Operating income for the SCS segment increased 1.3% primarily as a result of gross profit increasing more than SG&A increased.

LIQUIDITY AND CAPITAL RESOURCES

General Overview

As a distributor of MRO products and services, we require significant amounts of working capital to fund inventories and accounts receivable. Additional cash is required for capital items for information technology, warehouse equipment, leasehold improvements, pump manufacturing equipment and safety services equipment. We also require cash to pay our lease obligations and to service our debt.

The Company generated $8.5 million of cash from operating activities during the nine months ended September 30, 2017 compared to $35.7 million during the prior corresponding period. The $27.2 million decrease in the amount of cash generated between the two periods was driven by a greater increase in working capital during the 2017 period, partially offset by a $9.9 million improvement in net income and a lower level of net adjustments to reconcile net income to net cash provided by operating activities.

During the nine months ended September 30, 2017, the amount available to be borrowed under our credit facility increased from $37.3 million at December 31, 2016, to $81.0 million at September 30, 2017. This increase in availability is primarily a result of the Company terminating its previously existing credit facility and replacing it with the ABL Credit Agreement and Term Loan.

Senior Secured Term Loan B and ABL Facility

On August 29, 2017, DXP entered into a five year, $85 million Asset Based Loan and Security Agreement (the "ABL Credit Agreement") and a six year, $250 million Senior Secured Term Loan B (the "Term Loan B Agreement").

The ABL Credit Agreement provides for asset-based revolving loans in an aggregate principal amount of up to $85.0 million (the "ABL Loans"). The ABL Credit Agreement may be increased in increments of $10.0 million up to an aggregate of $50.0 million. The facility will mature on August 29, 2022. Interest accrues on outstanding borrowings at a rate equal to LIBOR or CDOR plus a margin ranging from 1.25% to 1.75% per annum, or at an alternate base rate, Canadian prime rate or Canadian base rate plus a margin ranging from 0.25% to 0.75% per annum, in each case, based upon the average daily excess availability under the facility for the most recently completed calendar quarter. Fees ranging from 0.25% to 0.375% per annum are payable on the portion of the facility not in use at any given time.

The Term Loan B Agreement provides for a $250 million term loan (the "Term Loan") that amortizes in equal quarterly installments of 0.25% with the balance payable in August 2023, when the facility matures. Subject to securing additional lender commitments, the Term Loan B Agreement allows for incremental increases in facility size up to an aggregate of $30 million, plus an additional amount such that DXP's secured leverage ratio (as defined in the Term Loan B Agreement) would not exceed 3.60 to 1.00. Interest accrues on the Term Loan at a rate equal to the base rate plus a margin of 4.5%, or LIBOR plus a margin of 5.5%. We are required to repay the Term Loan with certain asset sales and insurance proceeds, certain debt proceeds and 50% of excess cash flow, reducing to 25%, if our total leverage ratio is no more than 3.00 to 1.00 and 0%, if our total leverage ratio is no more than 2.50 to 1.00.

The interest rate for the Term Loan was 6.7% as of September 30, 2017.

DXP's principal financial covenants under the ABL Credit Agreement and Term Loan B Agreement include:

Fixed Charge Coverage Ratio – The Fixed Charge Coverage Ratio under the ABL Credit Agreement is defined as the ratio for the most recently completed four-fiscal quarter period, of (a) EBITDA minus capital expenditures (excluding those financed or funded with debt (other than the ABL Loans), the portion thereof funded with the net proceeds from asset dispositions of equipment or real property which DXP is permitted to reinvest pursuant to the Term Loan and the portion thereof funded with the net proceeds of casualty insurance or condemnation awards in respect of any equipment and real estate which DXP is not required to use to prepay the ABL Loans pursuant to the Term Loan B Agreement or with the proceeds of casualty insurance or condemnation awards in respect of any other property) minus cash taxes paid (net of cash tax refunds received during such period), to (b) fixed charges. The Company is restricted from allowing its fixed charge coverage ratio be less than 1.00 to 1.00 during a compliance period, which is triggered when the availability under the ABL facility falls below a threshold set forth in the ABL Credit Agreement.

Secured Leverage Ratio – The Term Loan B Agreement requires that the Company's Secured Leverage Ratio, defined as the ratio, as of the last day of any fiscal quarter of consolidated secured debt (net of unrestricted cash, not to exceed $30 million) as of such day to EBITDA, beginning with the fiscal quarter ending December 31, 2017, is either equal to or less than as indicated in the table below:

Fiscal Quarter	Secured Leverage Ratio
December 31, 2017	5.75:1.00
March 31, 2018	5.75:1.00
June 30, 2018	5.50:1.00
September 30, 2018	5.50:1.00
December 31, 2018	5.25:1.00
March 31, 2019	5.25:1.00
June 30, 2019	5.00:1.00
September 30, 2019	5.00:1.00
December 31, 2019	4.75:1.00
March 31, 2020	4.75:1.00
June 30, 2020 and each Fiscal Quarter thereafter	4.50:1.00

EBITDA as defined under the Term Loan B Agreement for financial covenant purposes means, without duplication , for any period of determination, the sum of, consolidated net income during such period; plus to the extent deducted from consolidated net income in such period: (i) income tax expense, (ii) franchise tax expense, (iii) consolidated interest expense, (iv) amortization and depreciation during such period, (v) all non-cash charges and adjustments, and (vi) non-recurring cash expenses related to the Term Loan, provided , that if the Company acquires or disposes of any property during such period (other than under certain exceptions specified in the Term Loan B Agreement, including the sale of inventory in the ordinary course of business, then EBITDA shall be calculated, after giving pro forma effect to such acquisition or disposition, as if such acquisition or disposition had occurred on the first day of such period.

As of September 30, 2017, the company's consolidated Secured Leverage Ratio was 3.61 to 1.00.

The ABL Loan and the Term Loan are secured by substantially all of the assets of the Company.

Borrowings (in thousands):

	September 30, 2017		December 31, 2016		Increase (Decrease)
Current maturities of long-term debt, less unamortized debt issuance costs	$	3,365	$	51,354	$	(47,989	)
Long-term debt		239,042		173,331		65,711
Total long-term debt	$	242,407	$	224,685	$	17,722
Amount available ⁽¹⁾	$	81,010	$	37,347	$	43,663
⁽¹⁾ Represents the amount available to be borrowed at the indicated date under the most restrictive covenant of the credit facility in effect at the indicated date. The increase in the amount available to be borrowed is primarily the result of the Company terminating its previously existing credit facility and replacing it with the Term Loan Agreement and the ABL Credit Agreement .

Performance Metrics (in days):

	Three Months Ended September 30,
			Increase
	2017	2016	(Decrease)

Days of sales outstanding	63.2	65.4	(2.2)
Inventory turns	8.5	6.7	1.8

Accounts receivable days of sales outstanding were 63.2 days at September 30, 2017 compared to 65.4 days at September 30, 2016. The 2.2 days decrease was primarily due to our customers paying us sooner during the 2017 quarter compared to the 2016 quarter. Inventory turns were 8.5 times at September 30, 2017 compared to 6.7 times at September 30, 2016. The increase is primarily the result of low inventory turns in 2016 related to the 2016 organic sales decline, which resulted in 2016 sales decreasing faster than inventory decreased.

Funding Commitments

We believe cash generated from our operations will meet our normal working capital needs during the next twelve months. We expect we will be in compliance with the financial covenants under the existing ABL and Term Loan facilities through and including September 30, 2018.

Sales of Common Stock

During September 2016, the Company sold 238,858 shares of common stock at a weighted average price of $26.38 per share through a Form S-3 Registration Statement. Net proceeds were approximately $6.0 million and were used to pay down debt obligations.

On October 31, 2016, the Company closed on the sale of 2,484,000 shares of stock for total net proceeds of $46.2 million after expenses. These proceeds were used to pay down debt obligations.

The Company has not made any sales of common stock in the nine months ended September 30, 2017.

Acquisitions

All of the Company's acquisitions have been accounted for using the purchase method of accounting. Revenues and expenses of the acquired businesses have been included in the accompanying Condensed Consolidated Financial Statements beginning on their respective dates of acquisition. The allocation of purchase price to the acquired assets and liabilities is based on estimates of fair market value.

DISCUSSION OF SIGNIFICANT ACCOUNTING AND BUSINESS POLICIES

Critical accounting and business policies are those that are both most important to the portrayal of a company's financial position and results of operations, and require management's subjective or complex judgments. These policies have been discussed with the Audit Committee of the Board of Directors of DXP.

The Company's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). The accompanying Condensed Consolidated Financial Statements include the accounts of the Company, its wholly owned subsidiaries and its variable interest entity ("VIE"). The accompanying unaudited condensed consolidated financial statements have been prepared on substantially the same basis as our annual consolidated financial statements and should be read in conjunction with our annual report on Form 10-K for the year ended December 31, 2016. For a more complete discussion of our significant accounting policies and business practices, refer to the consolidated annual report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2017. The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of results expected for the full fiscal year.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 3 to the Condensed Consolidated Financial Statements for information regarding recent accounting pronouncements.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our market risk results from volatility in interest rates. Our exposure to interest rate risk relates primarily to our debt portfolio. Using floating interest rate debt outstanding at September 30, 2017 and 2016, a 100 basis point change in interest rates would result in approximately a $2.5 million and a $3.2 million change in annual interest expense, respectively. The decrease from 2016 is primarily the result of paying down debt during 2016 and 2017.

ITEM 4: CONTROLS AND PROCEDURES.

We have established disclosure controls and procedures that are designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known to our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) by others within our organization to allow timely decisions regarding required disclosures. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2017. Based on this evaluation, as a result of the material weakness in our internal control over financial reporting described below, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2017.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

We had material weaknesses in our control environment and monitoring to support the financial reporting process.

We did not design and maintain effective internal control over the accounting for income taxes, including the timely preparation of the income tax provision and schedules supporting the related tax assets and liabilities. Specifically, management did not design and maintain controls with a level of precision that would allow for an effective review to identify a material misstatement. We did not maintain effective management review controls over the monitoring and review of certain accounts, thus we were not able to properly conclude these account reconciliations and analyses were performed at an appropriate level of detail. We did not design and maintain effective controls to provide reasonable assurance over the accuracy and completeness relating to:

·	Maintaining adequate documentation to support proper revenue recognition;

·	Capturing and accounting for all fixed price contracts;

·	Obtaining proper approvals for contract change orders;

·	Documenting approval of management bonuses in a timely manner;

·	Improperly recording proceeds from property and equipment disposals to cost of sales;

·	Improper recording of valuation accounts in purchase accounting;

·	Obtaining proper approvals for freight invoices;

·	Accounting for fully amortized intangible assets;

·	Improperly recording operating leases on a method other than straight line recognition; and

·	Improper access to payroll records.

We had material weaknesses related to information technology general controls ("ITGC"). We did not maintain effective ITGC, which are required to support automated controls and information technology ("IT") functionality; therefore, automated controls and IT functionality were ineffective.

We had material weaknesses related to internal control activities to support the financial reporting process and failure to maintain adequate evidence of control operations. We did not effectively design, document nor monitor (review, evaluate and assess) the risks associated with the key internal control activities that provide the accounting information contained in our financial statements.

Remediation Plans

Beginning in the fourth quarter of 2016, as part of our routine efforts to maintain adequate and effective internal control over financial reporting, we initiated and are continuing to implement measures designed to improve our financial closing process and enhance certain internal controls, processes and procedures. As indicated below, a number of these initiatives relate directly to strengthening our control over accounting for income taxes and address specific control deficiencies which contributed to the material weaknesses as discussed above. As a result of these efforts, the Company believes it has made progress as of September 30, 2017 toward remediating the underlying causes of the material weaknesses. Specifically, the Company has undertaken the following steps to remediate the deficiencies underlying these material weaknesses:

·	We augmented our tax accounting resources by engaging third party professionals and hiring an experienced tax director to strengthen tax accounting review procedures in the United States and Canada.

·	We developed and implemented enhanced policies and procedures relating to tax account reconciliations and analysis.

·	We are implementing close procedures at interim periods to allow for more timely and increased oversight by our management of the calculation and reporting of certain tax balances.

·	We are reassessing the design of our tax review controls to identify areas where enhanced precision will help detect and prevent material misstatements.

·	In connection with the remediation of the material weakness in our control activities, we are enhancing our policies relating to the documentation, review and approval of account reconciliations.

·	To enhance our information technology controls, we are implementing systems and processes in order to create an effective segregation of duties, restrict user access to applications and improve output controls.

·	We are implementing procedures to enhance the level of communication and understanding of our accounting and internal control policies and procedures in an effort to remediate the material weakness in our monitoring efforts.

We are committed to maintaining a strong internal control environment, and believe that these remediation efforts represent significant improvements in our control environment. The identified material weaknesses in internal control will not be considered fully remediated until the internal controls over these areas have been in operation for a sufficient period of time for our management to conclude that the material weakness has been fully remediated. The Company will continue its efforts to implement and test the new controls in order to make this final determination.

Remediated Material Weakness

As of the filing of this Quarterly Report on Form 10-Q, our management has completed the implementation of our remediation efforts related to the material weakness over the accounting for income taxes which included the following:

·	Engaged third party professionals and hired an experienced tax director to strengthen tax accounting review procedures in the United States and Canada.

·	Developed and implemented enhanced policies and procedures relating to tax account reconciliations and analysis.

·	Implemented close procedures at interim periods to allow for more timely and increased oversight by our management of the calculation and reporting of certain tax balances.

·	Reassessed the design of our tax review controls to identify areas where enhanced precision will help detect and prevent material misstatements.

Changes in Internal Control over Financial Reporting

Except as described above, there are no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2017 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, the Company is a party to various legal proceedings arising in the ordinary course of business. While DXP is unable to predict the outcome of these lawsuits, it believes that the ultimate resolution will not have, either individually or in the aggregate, a material adverse effect on DXP's consolidated financial position, cash flows, or results of operations.

ITEM 1A. RISK FACTORS.

No material changes have occurred from risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

ITEM 4. MINE SAFETY DISCLOSURES.

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

3.1	Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-8 (Reg. No. 333-61953), filed with Commission on August 20, 1998).

3.2	Bylaws (incorporated by reference to Exhibit 3.2 to the Registrant's Registration Statement on Form S-4 (Reg. No. 333-10021), filed with the Commission on August 12, 1996).

3.3	Amendment No. 1 to Bylaws (incorporated by reference to Exhibit A to the Registrant's Current Report on Form 8-K, filed with the Commission on July 28, 2011 (file no. 000-71513)).

*10.1

Term Loan and Security Agreement Dated as of August 29, 2017 by and among DXP Enterprises, Inc., Borrower and the Other Persons Party hereto from time to time, as Guarantors, and Goldman Sachs Bank USA, as Administrative Agent and Certain Financial Institutions, as Lenders.

*10.2

Loan and Security Agreement Dated as of August 29, 2017 by and among DXP Enterprises, Inc., Pump-PMI, LLC, PMI Operating Company, LTD., PMI Investment, LLC, Integrated Flow Solutions, LLC, DXP Holdings, Inc., Best Holding, LLC, Best Equipment Service & Sales Company, LLC, B27 Holdings Corp., B27, LLC, B27 Resources, Inc. and Pumpworks 610, LLC as US Borrowers, DXP Canada Enterprises, LTD., Industrial Paramedic Services, LTD., HSE Integrated LTD., and National Process Equipment Inc., as Canadian Borrowers and the Other Persons Party hereto from time to time, as Guarantors, and Bank of America, N.A., as agent and Certain Financial Institutions as Lenders, Bank of America, N.A. as Sole Lead Arranger and Sole Bookrunner and BMO Capital Markets Corp., as Documentation Agent.

* 31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act, as amended.

* 31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act, as amended.

* 32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* 32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101	Interactive Data Files

Exhibits designated by the symbol * are filed with this Quarterly Report on Form 10-Q. All exhibits not so designated are incorporated by reference to a prior filing with the Commission as indicated.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DXP ENTERPRISES, INC.

(Registrant)

By: /s/ Kent Yee

Kent Yee

Senior Vice President and Chief Financial Officer

(Duly Authorized Signatory and Principal Financial Officer)

Dated: November 9, 2017

TABLE OF CONTENTS

Part I: Financial Information Item 1: Financial Statements Note 1 - The Company Note 2 - Summary Of Significant Accounting and Business Policies Note 3 - Recent Accounting Pronouncements Note 4 - Fair Value Of Financial Assets and Liabilities Note 5 Inventories, Net Note 6 Costs and Estimated Profits on Uncompleted Contracts Note 7 - Property and Equipment, Net Note 8 - Goodwill and Other Intangible Assets Note 9 Long-term Debt Note 10 Income Taxes Note 11 - Stock-based Compensation Note 12 - Earnings Per Share Data Note 13 - Commitments and Contingencies Note 14 - Segment Reporting Note 15 - Subsequent Events Item 2: Management's Discussion and Analysis Of Financial Condition and Results Of Operations Item 3: Quantitative and Qualitative Disclosures About Market Risk Item 4: Controls and Procedures Part Ii: Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits

Exhibits

3.3 Amendment No. 1 to Bylaws (incorporated by reference to Exhibit A to the Registrant's Current Report on Form 8-K, filed with the Commission on July 28, 2011 (file no. 000-71513)). *10.1 Term Loan and Security Agreement Dated as of August 29, 2017 by and among DXP Enterprises, Inc., Borrower and the Other Persons Party hereto from time to time, as Guarantors, and Goldman Sachs Bank USA, as Administrative Agent and Certain Financial Institutions, as Lenders. *10.2 Loan and Security Agreement Dated as of August 29, 2017 by and among DXP Enterprises, Inc., Pump-PMI, LLC, PMI Operating Company, LTD., PMI Investment, LLC, Integrated Flow Solutions, LLC, DXP Holdings, Inc., Best Holding, LLC, Best Equipment Service & Sales Company, LLC, B27 Holdings Corp., B27, LLC, B27 Resources, Inc. and Pumpworks 610, LLC as US Borrowers, DXP Canada Enterprises, LTD., Industrial Paramedic Services, LTD., HSE Integrated LTD., and National Process Equipment Inc., as Canadian Borrowersand the Other Persons Party hereto from time to time, as Guarantors, and Bank of America, N.A., as agent and Certain Financial Institutions as Lenders, Bank of America, N.A. as Sole Lead Arranger and Sole Bookrunner and BMO Capital Markets Corp., as Documentation Agent. * 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act, as amended. * 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act, as amended. * 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

DXPE 10-Q Quarter ended Sept. 30, 2017

Exhibits