Good afternoon. My name is Jaime, and I will be your conference operator today. At this time, I would like to welcome everyone to the DXP Enterprises Incorporated First Quarter 2007 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions). Thank you. And it is now with great pleasure to turn the floor over to your host, Mr. Mac McConnell, Senior Vice President of Finance. Sir, you may begin your conference.

This is Mac McConnell, CFO of DXP. Good evening and thank you for joining us. Welcome to DXP's first quarter 2007 results conference call. David Little, our CEO, will also speak to you and answer your questions. Before I begin, I want to remind you that today's discussion will include forward-looking statements. We want to caution you that such statements are predictions and actual results and events can differ materially. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings, but DXP assumes no obligation to update that information. Our first quarter press release, income statement, balance sheet, and cash flow statement are available on our website at www.dxpe.com. I will begin with a summary of DXP's first quarter 2007 results. David Little will share his thoughts regarding the 2007 results and the future. Then we will be happy to answer questions. Sales for the first quarter increased 33.8% to $83.6 million from the first quarter of 2006. Sales by the four businesses acquired in 2006 accounted for $10.2 million of the sales increase. Excluding sales for the four acquired businesses, sales for the 2007 first quarter increased 17.5% from the 2006 first quarter. This sales increase is primarily due to a broad based increase in the sales of pumps, bearings, safety products and mill supplies. First quarter of 2007 sales for our SmartSource business unit increased approximately 46% compared to 2006. Sales for the innovative pumping solutions group increased approximately 88% for 2007 compared to 2006. The MRO group's first quarter sales increased approximately 21%. Gross profit for the quarter increased 43.7% from 2006. Gross profit as a percentage of sales increased to 29.8% from 27.8% in 2006 first quarter, as…

Thanks, Mac. I would also like to thank everybody for participating on the conference call today. I am very pleased with our first quarter results. I can happily say that all of our regions reported growth at both the top line and the bottom line. When we look at our business, we look at three segments. Our B2B Solutions which is our integrated supply had reported growth of 46%. They are presently working on several large deals and continue to make improvements in their supply chain sourcing solutions. Innovative pumping solution which is our segment that does capital projects on pumping systems, engineering, CAD/CAM, drawings and et cetera for the offshore industry and the utility industry grew 88%, which Mac has already said continues to report increased supporting activity and the present status of their new fabrication centre is that the first shift is working 100% and second shift is 75% manned, the third shift is 50% manned. All shifts are working six days a week. Our backlog is up. Our repair shops are in capacity bound by the lack of finding good mechanics. They are doing quite well. DXP service centers which had growth of 21%, just to give you some idea about the different kinds of activity they have going on, I asked our group of managers to list these out for me, and so, I am going to read them to you. Cleburne, which is a new store that we opened and we opened that too small, is a new building, 13,000 square feet. Move-in date is set for August. To Safety International, which is an acquisition we did, and this is an example of us taking an acquisition, taking the product offering and adding it to one of our service centers, in this case the new…

Thank you. (Operator Instructions) Your first question is coming from Matt Duncan of Stephens Inc. Please go ahead.

Good afternoon Dave and Mac and congrats on another great quarter.

Thank you.

First things first on the gross margin line, it’s very impressive gross margin performance you guys put up this quarter ahead I guess. I know you mentioned that innovative pumping solutions business had a little bit to do with that. Was there any one project that was exceptionally high margin this quarter as this sort of a sustainable level that we can think about going forward?

Well, it's, all of our capital project business are obtaining higher margins, as we are planning in that area of sellers market right now. We continue to work on our price metrics for our DXP service centers in differentiating between B2B solutions in our bricks and mortar offering. And so, we've seen margin improvements there. I think, what were they exactly Mac there, 31 something is that, what were our margins? Gross margins,

Yeah 29.8.

29.8? Okay. Our goal is to get to 30. And so that, you saw that so I am pleased with that I don't know it will bounce around a little bit, but we're coming to 30.

Okay, great, makes sense. Looking at the SmartSource business for a minute, I know you guys have two, two and a half integration teams there right now. Did you add any SmartSource locations this quarter?

We added one in March.

Okay you did add one in March.

We now have 18.

Okay. So, should we think, I guess it takes these guys a lot to get these sites integrated. So should we think about adding roughly a location per quarter there as we go forward, is that kind of a goal? Do you have a goal for how many you would like to add per quarter going through the year?

Yes, we would like to add two to three a quarter, and so that's how we build up the teams and the implementation normally takes 90 days. That can depend on the size of the plant site that we are dealing with. Whether its $1 million annual spending or $5 million annual spending. Would you talk to Mike?

Yes, just probably really only one that's signed up to be added in the future but there are a number of possibilities out there. Some of these are different, they are not all the same size some could be dramatically different size and therefore adding one could be a big add and some others would be smaller adds. I guess at this time we can't pick our goal if they did as many as they can, they would start expanding teams.

Sure, so the pipeline has got one more in it but that’s something you would expect to go up over time here?

There are number that are in extensive negotiations and discussions right now.

Okay, fair enough. And then the last thing here and I'll jump back in the queue and let other people jump in. On the acquisition front David, it's been a few months now since you have made one. I know you've obviously got some lofty goals with where you'd like to get the top line by 2010. Can you update us on what the acquisition pipeline looks like for you guys right now and are you getting close to closing anything?

That's a hard question in a way, but I would say we are very close to closing something and something that we feel really, really good about. I can't tell you who or how or what.

Sure.

But, and then of course we are always talking to I guess to quantify we are probably talking to a couple hundred million dollars worth of acquisitions as we speak. There is probably only one other one probably in the $20 million stage that would be done within the next three months or so. But then there is I guess I already said that. There is one that's very close.

Okay, great, thanks a lot guys and congrats again on a good quarter.

Thank you.

Thank you. Your next question is coming from Andrea Sharkey of Sidoti & Company. Please go ahead. Andrea Sharkey - Sidoti & Company: Hi, good afternoon everyone.

Hey, Andrea.

Hi, Andrea. Andrea Sharkey - Sidoti & Company: I guess, your first question, I don’t know if you break this out, but you said that the innovative pumping solution sales were up 88%, which is very impressive. But I was wondering if you could breakout how much of that was related to the acquisitions that you've made and how much was organic growth?

I guess the organic growth rate for the innovative pumping solutions would have been around 58%. We backed off the acquisition. Andrea Sharkey - Sidoti & Company: Okay, so still very impressive even without the acquisitions. And then David, you had talked about combining the acquisitions on some of the Safety International and the Gulf Coast Torch acquisition into other service centers. I just wanted to clarify that additional kind of service centers for them, if not that you are closing down the existing service centers for those acquisitions that you made, is that correct?

Right, that's a very good point. Gulf Coast Torch has a facility located between Galveston and Houston, and it's a new facility for them in Beaumont combining with our existing store. Actually our existing store wasn't big enough to hold a new proposition plus what they were doing. So, we had to go to a new facility. But, that's new to Gulf Coast Torch. And everything I have talked about on Safety International, which was favorable is we are taking the Safety Internationals value proposition and taking that to either a new store or a existing store that doesn't have that value proposition. Andrea Sharkey - Sidoti & Company: Okay, great.

So we are not. You are absolutely correct. We are not taking our Safety International vessel store and combining it with another store and eliminating and at least not doing it. Andrea Sharkey - Sidoti & Company: Okay. And then when you are talking about a lot of this stuff that you are doing, expanding product lines are different. Service centers, you mentioned hiring more sales people which makes sense obviously, you need people to do the work. But I guess I was wondering if you could maybe quantify a little bit what you kind of see as the cost additions to SG&A related to that is. Give me CapEx expenses also related to adding the new states at Beaumont and things like that?

Yeah. Let me backup and first say that, it's, you know this but maybe not, I have to start, is that we have a store that's just selling pumps I would say, and that was an example of Oklahoma City was just selling pumps one day. And as we add more product categories to it, we start calling at our DXP super centers. So that's our goal, and so we took all the debt for Oklahoma City store selling only pumps, selling about $200,000 a month, and today it sells over $1 million a month, because we added bearings and PT and cutting tools to it. So that's our goal. The CapEx point of doing that goal unless it's -- and we rent building so we don't buy new buildings. But sometimes we do need a bigger footprint, so we go out and lease a bigger building. We need $150,000 probably per value proposition on excess inventory, so they were a pump store and now they need a bearing supplier so we putting are about $150,000 worth of bearing inventory. Is that answering your questions? And then lastly on the expense side is that we are finding that because of the way we do it, we hire an outside person and an inside sales person, and the team of them bring this because they are experienced people and we've probably robbed them from our competition that they bring business with them. So if there's really no hurt on earnings, there’s not like the startup situation where for six months you are not going to make any money as you ramp up revenues. So we found out in Oklahoma and Odessa and places like that, that we were able to add these propositions in a way that we always still make money. Now we didn’t make as much money as we do when they are hitting on all cylinders, but nonetheless it doesn't hurt very bad. Andrea Sharkey - Sidoti & Company: Sure. Okay, well that’s great. And then I guess I'll ask one more question and then jump back in line so other people can have a turn. Just in terms of, we're almost all the way through April now, any sense of how your businesses are looking or any change one way or the other relative to what you've been doing? Are we seeing any weakness anywhere or anything like that?

We always talk about markets, and so we think the oil and gas market and the mining industry are really, really strong. We think the refining and petrochemicals are strong. There's parts of the chemical market that are a little weak. There are always markets that are going to be stronger than others and weaker than others. But in a general sense, overall, our business is very good and because we are designing the company to always take market share away from the little [mountain] top business that we feel like we are always going to be able to grow. And we'll grow faster at times and other times we're not suggesting that, because if the market is giving us a whole bunch of growth we are not only gaining market share but we are getting to ride the wave of our market increase. But even during tough times it's our objective to grow the top line 20%, which I keep trying to do in the 25-35 dance all the time. And we hope to do more than that and we've been doing more on that and we are proud of that fact. But I think I've already said, as far as we can see ’07 looks very good. Andrea Sharkey - Sidoti & Company: Okay, great. Thanks so much.

Okay, our next question is coming from [Edmund Lukvinton at Caranova Financial]. Please go ahead.

Congratulations gentlemen on yet another great quarter.

Thank you, Ed.

I'd like to just to ask a couple of quick questions regarding the balance sheet at DXP, and provide a quick update on how you ended up on cash levels and DSOs, inventory levels, and to what extent you may have paid down any additional debts, and that would be great, thank you?

Like I said before our debt increased by $275,000 during the quarter, our cash increased by $700,000 during the quarter. Well would you want to know about day sales, 48.2 days compared to 49.1 days for the first quarter of 2006, inventory turns were 6.6 times for 2000 first quarter compared to 7 times a year ago.

Excellent, thank you very much. I think that some of that inventory is a function of work in progress and the backlog, I am just curious.

There's nothing we've really done to make inventory go up or down really.

It has been found that the lead times have moved out and so we have purchased inventory in advance or one way would have normally really part of our inventory turns have declined.

Thank you. (Operator Instruction). Your next question is coming from Matt Duncan of Stephens Inc. Please go ahead.

Hey, guys. Just one quick follow up, a numbers question here. Mac, on the SG&A line, you said there were about $300,000 in Sarbanes-Oxley costs that were in that line. Was there anything else that was sort of unusually high or anything in the quarter? Is that kind of a good base to go forward after you back up at 300K.

I really think it's a fairly good base. There is some extra payroll taxes. Payroll taxes are always higher in the first quarter than the rest of the year plus we had some stock option exercises that we have to match payroll taxes on that gain which counts us in as compensation expense for us.

Sure. Okay.

There is an extra $100,000 for that. The rest of it was pretty much in line.

Did the acquire businesses -- were the SG&A costs, as a percent of sales, any higher for any of those than it was for DXP prior to those acquisition?

They are a little bit higher.

Okay. So, that's part of that. All right. I appreciate the insight. Thanks.

Sure. And Matt, as lot of acquisitions we've been doing of late are higher gross margin businesses and typically associated with that is a little higher expenses. But they do make higher operating income which is sort of the goal.

Yeah. Absolutely.

Thank you. Your next question comes from Paul Resnik of Dutton Associates. Please go ahead.

Hey, another great quarter. I was looking at the acquired businesses with $10.2 million in sales in first quarter. And looking at three businesses, the revenue rate when you acquired them last fall, looks like it was a little under some, three going together, little under $25 million annual rate. From a quick math, $10 million for the first quarter was a lot better than that. So, can we assume that the integration with the rest of DXPs with the service centers setting up has really accelerated the sales for those acquired businesses?

I agree Paul. I don't know how much magic is coming from us or just in one case, the father owned the business. His son was running and the father had clamped down on him really hard. And so we took the clamps off and they are running and going and doing a really great job. In most cases, we are very proud of the fact that we can acquire people and we certainly don't hurt their sales. Now, how much value-add we get inside of one quarter, I don't know. That's a tough one. But as you saw Safety International had about three or four places that it was opening up inside of our stores, Gulf Coast Torch was opening up a new stores in Beaumont. So, we've kind of take the handcuffs off these people and tell them that what we want is to build the top line and bottom line at the same time and that's what we measure the successful business man is.

Mr. Resnik, does that answer your question, sir. Mr. Resnik, does that answer your question. Thank you. (Operator Instructions). You have a follow-up question coming from Andrea Sharkey of Sidoti & Company. Please go ahead. Andrea Sharkey - Sidoti & Company: Hi. Just a couple of follow-up questions. On the gross margins, obviously you did very well. You mentioned the price of [Matrix] software was only, you partially implemented it in the first quarter. I was wondering if you had any sense of, if that had any impact at all on the gross margin in this quarter or if that’s not really going to show up so I guess maybe in the second quarter or maybe even beyond once it really gets build up?

Yeah, I think we implemented a test site and we ran up about, I think what we can measure is how many times an inside salesperson use which was just a price and that number was about only about $400,000 worth of business. But the improvement was like in the 5% range in terms of what the margin improvement was on that $400,000. So we are really excited about what the results that we are getting at, and of course part of doing a test for each site is to tweak the process and make sure that it's going to work on a full-loaded basis before we cut it lose. But we actually have a meeting this Friday with the software designer and Paul [Mayatesus] is heading up the project, and then John Jeffery’s our sales and marketing guy and so they are presenting to me a rollout of the whole project. So I would say that’s a long answer to your question there, most of the margin improvement’s coming. Andrea Sharkey - Sidoti & Company: Okay. And actually kind of going back to you, I think you said the goal is to get to the 30% gross margin, but just hearing what you're saying about the Price Matrix software, I mean is there I guess opportunities so that goal should be exceeded for you guys to come up with I guess another goal beyond that 30%?

Our real goal is to get EBITDA to 10%. And part of getting there is to increase our margins. And really the 30% would be based on the product or the segment mix that we have today. In other words B2B that's about 10% or 11 or 12%, somewhere around in there. And the DXP service centers is about 70%, innovative pumping solutions is about 20%. Well it’s the service centers that we really want to see a 5% improvement in their margins, and it happens to be the biggest segment. B2B is a fast growth rate, we have a large growth there but it is a lower margin business.

Lower gross profit margin?

Yeah lower gross profit margin business, but it has the same operating income. I don’t know their goal is to still hit 10% operating income also. They are not there, none of us are there, but that's our goal. So I guess the mix could actually change to just oversimplify and state its all going to be 30 I just probably really mis-spoke. That is a nice number, because if I could get 30 there and 20 SG&A expense well then I'm there. So I kind of think that way. So I am not sure I answered your question.

For example if we signed up a $50 million SmartSource deal, it's very likely that the gross profit margin percentage might drop. Andrea Sharkey - Sidoti & Company: Sure the mix is part of that. That makes sense. And then just my last question was, on the last conference call we talked about the backlog in the innovative pumping solutions and it sounds like it still very high. I guess, I just wanted to ask, last time you said that you're booking orders into 2008. Is that still the case or is your backlog further into '08, now that we are a month or so past the last time we spoke about that?

Alright, to clarify that point is, we have some manufacturers that are in LA, and yes we are still booking orders today that might get shipped in '08. But we are still booking some orders today that are with other manufacturers that and they are still within the innovative pumping solution family. They will get shipped this year, so yes, we are building '08 backlog and we are building '07 backlog. Andrea Sharkey - Sidoti & Company: Okay. And is the difference just based on when the customer wants the…?

No, as the biggest problem is the manufacturer, actually what I am referring is the components, it's actually National-Oilwell is our problem. To be specific they are not a problem there. So great light on power, great, okay. Yes. When we sell a big package unit that the pumps coming from National-Oilwell, we can't get them into '08. Andrea Sharkey - Sidoti & Company: Okay.

Okay, now we have an awful lot of National-Oilwell inventory, but it's happened to be of a size that we don't have on inventory, well then that's when we get in trouble. So, that's why I say we could get a National-Oilwell type job or reach a type pump than we do have a product. And we can ship it in '07 and of course the customer is ecstatic about that and he'll pay a good price because we do have it in the inventory. Sometimes the orders though something that's how the ramble what we normally stock, and those deliveries from National were out in'08. Now the focus on National, I could talk about Goulds Pumps, third deliveries on in '08, Viking Pumps or other types of Wilden Pumps etcetera, are not that far out. Andrea Sharkey - Sidoti & Company: Okay, sure that makes sense. Alright well, thank you very much for the answers to those questions that's I had?

Appreciate it, thank you.

Thank you. You have a follow-up question coming from Paul Resnik, of Dutton Associates. Please go ahead.

Of course and I am asking a few questions. On the tax-rate, you did comment that it was higher than usual. But it was really since I have been following the stock, the highest tax-rate you've ever had. Do you think that's going to be coming down or do you think at your current level of profits and the states you are doing business and we should be looking at 39% plus tax-rate?

That the tax-rate for the first quarter of 2007, is indicative of our future tax-rate. I think we--

Kind of a situation with me--

Well now the federal tax-rate, we were really at a level when we were paying 34%, now we are paying 35%.

Okay, secondly on the SG&A, you did go through, its been covered, and if you go through a couple of things that kicked it up a little bit, but there are two there was relatively high SG&A and relative to what you've been doing in recent quarters. In that case do you see a possibility of that kind working its way back down in course of the 21% or its 21.8%?

I would hope it would come down. A lot of our SG&A is driven by incentive compensation or just driven by profit and it’s the gross profit line stays at 30% or something then SG&A's going to stable to higher than it's been in the past.

Very good. Thank you.

Thank you. There appear to be no further questions at this time, I would like to turn the call back to David Little for any closing comments. Please go ahead, sir.

Well, thanks again for participating in our conference for [second] one, all-in-all a good, we will adding up, it will try to get better. And again, we look forward to a very prosperous 2007. Thanks.

Thank you. This concludes today's DXP Enterprises Incorporated first quarter 2007 results conference call. You may now disconnect your lines at this time and have a wonderful evening.