This is the email that David Little, Chairman and CEO of Houston-based DXP Enterprises sent to his employees to explain why, "due to bank obligations and to continue a positive cash flow profile" the company has to freeze 401(k), why it is cutting pay in some cases as much as 60% and why many employees are about to lose their jobs in the middle of what is an "oil and gas depression." It is a disturbing read.
As you well know, these are very challenging times for everyone in the oil & gas industry and other industrial markets. We are working hard to navigate both the challenges in oil & gas and an industrial recession plus what appears to be continuing softening. Normally, when upstream oil and gas is down the rest of the industrial market is booming, not this time!
This past Friday, we announced our fourth quarter and year-end results. Our revenues were down 17% from a year ago and 27% from the fourth quarter of 2015 versus the fourth quarter of 2014. Fiscal year 2016 has started off even weaker than we anticipated with January sales down an additional 12% from December. Oil and gas related companies across the country have reported sales declines as high as 50% - 60%. All of this in the midst of declining industrial confidence and performance. Furthermore, the forecast by experts suggests the oil & gas economy will get worse before it gets better. We are currently 20 months into this oil & gas down cycle which is also unusually long for a correction.
It goes without saying but over the past twelve months, we have all made efforts to contain costs and improve operations where possible. All, while focusing on growth. For this, we thank all of you for the sacrifices, discipline and effort you are making each and every day. But I am sorry to say that because of bank obligations and to continue our positive cash flow profile, we have to do more. The leadership team and I have been reviewing line-by-line every location, budget and expense, on how we can reduce costs while considering every decision through the prism of our values, culture and priorities. While we fulfilled a $2.9 million company match to our U.S. 401 (K) savings plan for 2015, we have determined it should be frozen immediately for the remainder of 2016. The Board of Directors, senior management and leaders in management positions will participate in a 10% reduction in base pay effective March 14th. Additionally, DXP as a whole company will require that we right size the company for our expected sales volume. This is in an effort to reduce labor costs while preserving as many DXPeople as possible in this uncertain economic environment.
We have all taken pay reductions over the last year with some of us taking reductions as high as 50% - 60% (via commission or bonus declines) including senior management. It is unfortunate, but the prolonged oil and gas depression and industrial recession has left us with no other choice but to make these difficult and unwanted moves and decisions.
The fastest and biggest cure to the health of DXP is more sales. Your expectations and mine are that the sales management, sales professionals and everyone else that touches our customers is working smart and diligently as we are all counting on you! DXP has given you some great weapons to be successful with and we are supporting and counting on your efforts to win each order. I am not going to list all the tools you have to win with, you should know what they are and understand how to use them already, but to use the “Hunter” and “Farmer” label you have to do both. “Farm” existing accounts to capture more of each customer wallet/spend and “Hunt” for new customers. We have the customer value propositions to sell and you have the selling skills to succeed.
Over the last several months, we have seen countless companies announce layoffs and in isolated incidents even bankruptcies. I point this out to try and put in context that the oil and gas depression is affecting more than DXP and is further reaching than many would have initially thought when this started over 2 years ago. The decisions we make are about preserving the future of DXP. DXP is a great company that is accustom to winning and we will win again. I can promise you that the leadership team will do all that we can to put us in a position to emerge stronger on the other side while staying true to our values and culture. Thank you for your understanding.
Chairman & CEO
DXP Enterprises, Inc
And here is some more context, courtesy of the WSJ: