Good day, ladies and gentlemen. Thank you for standing by. Welcome to the DXP Enterprises Incorporated 2012 Fourth Quarter and Year End Results Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation the conference will be open for question. (Operator Instructions) This conference is being recorded today, Wednesday, February 27, 2013. I would now like to turn the conference over to, Mr. Mac McConnell, Senior VP of Finance and CFO. Please go ahead.

Thank you. Good evening and thank you for joining us. Welcome to DXP’s fourth quarter conference call. David Little, our CEO, will also speak to you and answer your questions. Before we begin, I want to remind you that today’s discussion will include forward-looking statements. We want to caution you that such statements are predictions and actual events or results could 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. I will begin with a summary of DXP’s fourth quarter 2012 results. David Little will share his thoughts regarding the quarter’s results, then we will be happy to answer questions. On October 1, 2012, DXP acquired substantially all the assets of Jerzy Supply in Houston, Texas for approximately $5 million in cash. DXP recognized approximately $2.3 million of sales for Jerzy during the fourth quarter of 2012. Sales for the fourth quarter increased 34.2% to $293 million from $218.4 million for the fourth quarter of 2011. After excluding fourth quarter 2012 sales of $56.5 million for businesses acquired in 2011 and 2012, sales for the fourth quarter increased 8.3% on a same store sales basis. Sales for Supply Chain Services decreased 1.1% to $38.1 million, compared to $38.6 million for the 2011 fourth quarter. Excluding 2012, Supply Chain Services segment sales for businesses acquired in 2011 and 2012 of $600,000. The SCS segment sales for 2012 decreased 2.7% from 2011 on a same store sales basis. Sales of Innovative Pumping Solutions products increased 49% to $48.4 million, compared to $32.5 million for the 2011 fourth quarter. Sales by our Service Center segment increased 40.1% to $206.5 million, compared to $147.4…

Thanks, Mac, and thanks to our participants today. DXP’s fourth quarter and year end results for 2012 were simply outstanding. We continue to produce sequential quarter-over-quarter growth in topline and bottom line results. Our sales for the year grew 36% reaching $1.1 billion, producing a net income increase of $62%. Our last two quarters exceeded 10% EBITDA margins and our after-tax recurrent on invested capital on a pro forma basis was over 30%. DXP’s fourth quarter results were achieved despite a general softness in daily activity in both the United States and Canada. Yet sales were at a record high of $293 million, up 34.2% from same period in 2011. Fourth quarter diluted earnings per share were $0.92 versus $0.86 in the third quarter and $0.61 last year, quarter improvement of 50.8%. Fourth quarter year-over-year organic growth was 8.3%. I cannot thank our operations people enough for the strong back office support that drives customer loyalty and efficiencies by doing a day’s work in a day and exceeding our customer’s expectations. Being customer driven with a positive, can do attitude describes DXP people. Our operational excellence and back office support is so critical to our success. When our stated goal is to double the size of the company every four to five years, the planning and effort to keep pace an ahead of this is challenging. I would like to thank our IT department for improvements they made this past year. The accounting department did a great job in growing their department to handle our new entities and increase volume of business. Thanks to our Customer First Center. They provide excellent customer service. Our customer service representatives are expert across a large breadth of technical products and this group continues to grow as they provide solutions for both our external…

(Operator Instructions) Our first question is from the line of Matt Duncan with Stephens. Please go ahead.

Good afternoon, guys. Congrats on a great quarter

Thank you, Matt.

The first question I’ve got, David, just to make sure I understand some of the guidance, or sort of comments you were giving us about the first quarter correctly. You had a really big quarter in Innovative Pumping Solutions this quarter. And if I annualize that number, you’re up almost to $200 million in terms of annual revenues. Is that an annual revenue number you think you can do in 2013 in that segment, or was there something special about this quarter?

Well, special because it was the biggest loan we ever had. But, I think, we’ll duplicate that at least in the first quarter of next year and we see a lot of activity. I think to explain it best for our audience today is that we’ve had a lot of drilling and then drilling started declining. And part of that is frankly that we’re building the infrastructure production facilities and pipelines and things necessary to carry that oil to wherever it needs to be, whether that’s export chemical plant, refinery, et cetera and that infrastructure building is driving our capital equipment sales, and it is very strong and we see that continuing in 2013.

Okay. So it’s going to continue with that 4Q level into the 1Q, and they want to see where it goes from there but you feel good about it kind of wanted to think about it then?

Yeah.

Okay. Looking at the sales trends in the quarter, obviously your growth slowed a little bit in the Service Center business. Clearly there’s got to be some kind of economic and fiscal cliff impact on that. Can you maybe go through sort of the month-to-month sales trends you saw in the quarter, what’s you’re seeing so far here in the first quarter and is there anyway in your mind David to quantify the impact fiscal cliff might have had on your business?

Well, I don’t know how to quantify it. In effect, I mean all of 2012 we had, kind of a seesaw environment. So I don’t -- there has to be affecting business. I would say that our -- we had a very good January. I would say that February is tracking like January, but January had a lot more days. So February’s never going to be a blowout month. And then I would say our normal year, March, is always one of our bigger months of the year. And to give you an answer to that, it’s because oil field companies get their budgets and the faster they spend their budgets on equipment that’s going produce more, than the people get rewarded for producing more oil during the year than less. So consequently they spend the money at the end of the year than they only have a few months to produce oil, whereas if they spent it at the beginning of the year, they will do better. Of course, they can’t. They don’t have the ability to spend it all at one time. So they’ll get the impression that it’s always -- we’re not going to have anything to do for the rest of the year if it works that way. But I would say that March is typically a very, very good month for us and we started out with a good January.

Okay. That helps. Looking at your gross margin, it was obviously pretty strong this quarter relative to both last year and the quarter before it. Is that a, roughly 30% gross margin. Is that something you can carry forward? And is there any way to sort of call out, how much you think the new pricing software is helping your gross margin right now?

Our pricing software is installed in all of the regions and it’s healthy. But it’s only helping like a 0.5% or something. It’s not -- we’re not getting the full benefit of that. And we we’ll see continued improvement throughout the year. I think that we had some really nice fabrication jobs. So we have an increase in IPS-type business. That said, we had some of our -- some of the Service Center businesses whether it was cutting tools or safety services or some of those things, did not perform quite as well as we would like. And so you were never hitting on all cylinders. And so I -- I really feel like we’re going to be able to maintain our margin range from the high 28-point-something percent to still having a goal and we’ll have months where we will hit 30%. So to answer your question is, it’s always a mixed question, but I feel good about the direction of our gross profit margins.

Okay. So we should probably model that a little bit lower for 2013 than what it was in that one quarter, because we might be seeing sort of the best of all worlds in that quarter, because you’re saying it’s sustained. I’m thinking of the high.

Yeah. I think we modeled higher for the year. But we did have a nice December.

Okay.

Nice fourth quarter. Excuse me.

Last thing from me and I’ll hop back in queue. Just on the M&A front, it sounds like you’re expecting to close one or two deals in the first half, two to three in the second half. As we think about sort of the size impact that that may have sort of total revenue basis, when you put them all together, is it going to be enough to sort of hit that at least 10% revenue growth via acquisitions target that you’ve set?

Yeah. You can put it in the book that we’re going to do one -- we’re going to do $110 million.

Okay. Got it. All right. Thanks, David.

You bet.

(Operator Instructions) Our next question is from the line of Joe Mondillo with Sidoti & Company. Please go ahead. Joe Mondillo - Sidoti & Company: Hi, David, Mac.

Hi, Joe.

Hi, Joe. Joe Mondillo - Sidoti & Company: First question. Just regarding, I just wanted to focus a little bit on the IPS business. First off, you mentioned that the backlog at the end of the quarter was $60 million. What was it at the end of the third quarter?

I don’t know. Joe Mondillo - Sidoti & Company: Okay.

I’ll find out for you. I mean, I can find that out. It was less. Joe Mondillo - Sidoti & Company: I thought -- okay, it was less. Okay, okay. I thought I had a number in mind and I guess that’s incorrect. So I guess one of the big things that I’m trying to understand, you gave a lot of information regarding what’s driving that business. But if you could point out maybe one or two drivers that’s really driving, I mean, you’re seeing a significant growth compared to a lot of other companies. Just wondering what -- if you could point to one or two drivers that’s really driving that, whether it’s the offshore in the Gulf platforms coming online there or whether it’s the midstream business that you were talking about or new products. If you could point to one or two drivers there, that would be helpful. And then also if you could talk about the competitive landscape give us a feel there, how that’s looking? That’d be great. Thanks.

Well, Joe, the answer to your question is all the things you just listed. So you asked a great question. We’ve really added LACT units. And we’re having really nice success with our HP Plus product. So we have, in fact, added new products. We’ve also pointed out and I think the projection is we’ve done some offshore stuff. But that to us looks like it’s going to be increasing. Of course, we’re past the point where we did no offshore stuff. And so now we’re doing some offshore stuff. And it’s going to grow and we see some emerging market stuff growing. And then you had one other point. It was products and then it was offshore, and then markets. When we look at -- we look at markets and you pointed out midstream, it’s not just midstream. I mean, yeah, they’re trying to build more pipelines and stuff. But it’s also production facilities. And so you’ll have a small gathering facility that -- where they punched 20 holes in the ground and now they’re ready to reduce that. They gather it up in a production facility out in the oil field. It’s not -- it’s not like Cushing where they gather billions of barrels. It’s more just a small little gathering system where we sell equipment there. And so it’s that part of the equation that people are catching up on. And then from that production facility, they hope to tie in to a pipeline. And so they’ve got to build the infrastructure for that pipeline and that’s mid market. And then -- and so all of that is kind of in our sweet spot and we’re doing really well. Joe Mondillo - Sidoti & Company: Okay. So sort of a combination between products, I guess offshore drilling, and midstream production facilities.

Yeah. Yeah, sir. Absolutely. Joe Mondillo - Sidoti & Company: Okay. Okay. And in terms of new products, where are we in terms of introducing new products? Have they -- and sort of -- are these, sort of, revolutionary products to the industry. And sort of how does that match up, I also asked before if you could talk about just the competitive landscape. How does that match up with your competition?

Right. What happened to us was that we were -- we’ve always been selling big recip pumps. And we had competitors, manufacturers out there like Reda, Woods Group and Centrilift that had this down-hole pump. And this down-hole pump was designed to produce oil out of the ground. It was -- it’s designed to do something different than a lift situation like a Lufkin. But they took that down-hole pump and it’s just a long, centrifugal pump and they put in horizontal on the -- above the ground and start using it for disposal in water flood situation. And so what happened there is, those people never sold through distribution. So, we decided that we needed to play in that field, so we could have a high energy pump. We could have a reset pump. And then we could have this cheaper -- well, I shouldn’t say cheap, I’d just say less expensive centrifugal, long pump. And we decided to do that ourselves because nobody would play with us. And we felt -- so we went to -- we hired some people that knew how to make the pump. We went to China to have the parts made. We ship them here. We assemble them. We test it. And we have grown that business pretty substantially. And it’s a real nice piece of business. Joe Mondillo - Sidoti & Company: Okay. Great. That’s helpful. And then also, you mentioned that there was about $1 million of restructuring HSE. Could you talk about that acquisition and what you’re doing there and what that million was spent on and how every thing’s going with that?

Well, the two bigger pieces were around -- in the fourth quarter, around $400,000 of severance pay. We spent several hundred thousand dollars to move people into the Eagle Ford and safety area. HSE had U.S. safety operations and I moved a bunch of people into the Eagle Ford. That cost several hundred thousand. We’re just doing things to help the business grow.

The Canadian environment’s kind of interesting. You can fire anybody any time but when you do there’s a pretty big severance package that goes with it. It’s all defined based on how many years you worked there. And so we felt pretty strongly that when we purchased HSE that there were some synergies between the United States and Canada. But there was also kind of an overkill because HSE was a public company, trying to grow itself and had an infrastructure that looked heavy to us. So we went into that understanding the need to sort of right size the business. And it’s just kind of expensive to do that. Joe Mondillo - Sidoti & Company: Do you expect any further restructuring?

No. We do not. Joe Mondillo - Sidoti & Company: Okay.

Sorry. Wait a minute.

There’s a -- say $700,000 of severance in the first quarter. Joe Mondillo - Sidoti & Company: Okay. Okay. I was thinking about current. Okay. Mac’s right. I was thinking about that we’ve done…

We did it in January.

By the way, all of our Canadian buddies, we’re not firing any more people. Joe Mondillo - Sidoti & Company: All right. Good to know.

All behind us. Joe Mondillo - Sidoti & Company: Could you -- Mac, could you also just give me the amortization and the corporate expenses that were associated in the quarter?

Sure. Quarter. I was listing to the year. Okay. The Q4 amortization was $2.620 million, what I calculated. And the corporate expense was $6.3 million. Joe Mondillo - Sidoti & Company: $6.3 million. So that $6.3 million seems a little lighter compared to past quarters. Why would that be and is that sustainable or...

We have -- probably need to get better at this. If you look, you’ll see the SG&A outside of corporate was up. And so some of it is a swing, we historically have accrued for things in corporate that we didn’t charge for locations for till the time it was paid. Joe Mondillo - Sidoti & Company: Okay.

So bonuses, commission, some things that end up swinging. And I admit we probably need to get better about making that. The year’s right. Joe Mondillo - Sidoti & Company: Okay.

Swing between quarters. Joe Mondillo - Sidoti & Company: Okay. All right. Thank you.

Thank you.

Our next question is from the line of Holden Lewis with BB&T Capital Market. Please go ahead. Holden Lewis - BB&T Capital Market: Great. Thank you. Good afternoon -- good evening. Wanted to ask -- now that you have a little bit more experience with the pricing software, you perhaps picking up few months here of data points and such. I think you commented that may be that was kind of a 50 basis points benefit in the fourth quarter. But that was about it and there is still learning curve issues and things. Do you have a sense of how impactful -- I mean, when you feel like it’s operating and you wanted to operate, how impactful do you think that will ultimately be on gross margin versus if it wasn’t there. And how long do you think it’s going to take you to get there? Any feeling based on your experiences so far?

Well, we were told by the software company that our goal was to increase margins 2% to 3%. Now, they’re trying to sell us something. So, I think that was a grain of salt. But nonetheless, it’s the function. Yeah, we have the ability to track how often do they use the suggested price or how often do they even raise the suggested price, I give credit for that too, versus how many time do they go ahead and cut the price. And so what you’re trying to do is you’re trying to get to some 80% compliance where 80% of the times they’re using the suggested price they believe in. And they don’t foal like they have to cut the price. We’re probably in the 30% range. And it’s just because we haven’t been on it that long. They still don’t trust it. And we still give them the ability to cut the price if they feel like they need to. Holden Lewis - BB&T Capital Market: Okay. Fair enough. And so you don’t have to -- it’s entirely up to the branch still as to whether or not they comply or not. I mean, you’re assuming that they’re going to see that it’s in their best interests. But I mean, it sounds like you’re not that confident based on what you’re seeing the 200 to 300 basis points. If you have 50 basis points and you’re almost halfway to your compliance goal. I mean, it suggested about 100 basis points. Why is the difference between, what the creators of the software tell you can do and what it seems like you’re on track to do? Is that because you’re not requiring them to live via the software or there’s still an option? So there’s still too much bleeding out?

That’s right. And so what we do is there’s a report. There’s an exception report. So every time, the manager’s post to daily go through and look at the exceptions of when they decided to not use the price. Now, by the way, I mean, let’s say that there’s $100 item and they sold it for $99 instead. Well, worse than that, $99.90. Well, they still get dinged for not complying but it’s awful close to the right number. So -- but on the other hand, the manager says, hey, what’s -- why did you cut the price here. I mean, that -- it was only $0.10. And so there’s follow-up, there’s accountability, there’s tracking of the individual. So we got that Sandy over here, who cuts the price all the time and Mac, that never cuts the price. So why is that going on? There’s a lot of tractability and a lot of accountability but we do allow them to cut the price. We’re just not -- we’re not a 100% there yet. I mean, at some point of time, we’d love to be Grainger or MSC where they sit there and say this is the price. And this kind of customer gets a 5% discount. And this one gets nothing, et cetera but we’re not there yet. Holden Lewis - BB&T Capital Market: Okay. And on the SCS business, a lot of moving pieces there. I’m just sort of wondering what it all adds up to. It seems like we’re seeing little bit better sort of general industrial activity. On the other hand, you have some markets in there such as military and transportation that aren’t doing terribly well. It sounds like you’ve added at least one contract, lost at least one contract. Can you give us a sense directionally of how you see that revenue playing out based on all these moving pieces. I mean, do you have a big pipeline of new contracts to implement or it’s just directionally -- how are you feeling that SCS is going to go over the next 12 months?

It’s not -- it’s not looking that great. It’s -- they’ve done a really, really nice job of becoming a better company and putting some dollars on the bottom line. But there’s -- it’s been a struggle to grow and land new business. So that’s been our example, we’ve worked on a $19 million deal at the end of the day. Grainger won it and we were told we were the -- we were second. We were, in fact, they wanted to buy some stuff from us. But they weren’t going to go with us. It’s been a struggle. I don’t really have any confidence that I tell them all the time they’re my organic growth engine and they need to grow 20%. But if they did -- if they did 10 and part of that would come from just a better economy, which I kind of expect to have in the second half, then they will have a good year. Holden Lewis - BB&T Capital Market: Okay. So the idea is kind of mid high-single digit type growth, but sustaining kind of an 8% type margin just because that’s kind of how the model works now?

Yeah. And, Holden, that’s a really good point. We could get more deals if we were willing to give it away. And we’re just -- you know me, I’m all about margin, I’m all about 10% EBITDA. And they’re already under that. So, I’ve got a really good manager that’s managing that, that’s sitting there, saying, hey, we’re not going to just take thee deals for the fun of it. We’re going to either be able to make some money or not. And it just seem like there’s other people that are willing to just do it for nothing. And we’re just not willing to do that. What that’s done to us is that relegated us down into the more medium-size accounts. And we’re having some success there where we can really, really bring more value than just a cheaper price. Holden Lewis - BB&T Capital Market: Okay. What sense, just tell me, you talked about sort of the 10% EBITDA. You’re there in 2012. Can you give a sense of what kind of the next bogey and the next objective and when you plan on hitting that since you’ve kind of achieved now that original bogey?

Well, 2016 we’re going to be at $2 billion. And I think we’ll still be in the low teens with EBITDA margins. I don’t really -- based on our -- on the type of customers we deal with --- if you take A, B, C, D accounts, we don’t have a lot of C and D accounts. And so we have the larger accounts with more pressure on margins. I just think you’re going to see us in the low-teens and part of that will be -- I’ve been amazed. I thought it, but when it happened, I was still sort of surprised I guess but scale is important. And scale’s important with purchasing power and scale’s important with SG&A expense. And both of those things add up to increased margins. And maybe I will surprise myself. But that’s still amounts to like 50 to 70 basis points. It is legally sort of carrying it forward, that would still amount to 50 to 70 basis points of margin improvement a year through that period to get there, right. No, not to go from 10 to 11. I mean, but -- 11’s not low key, right.

Exactly. Well, I’m at 10. I mean, the last two quarters we’ve been 10, 10.5 on average. So, it’s just going to be incremental. It’s going to be pretty small, incremental improvement. Do you think -- I think there’s improvement. I’m not going to say there’s not improvement because there is, but… Holden Lewis - BB&T Capital Market: Okay. Thanks, guys.

Yeah. 2016 to hit $2 billion requires a 20% growth rate. And the 20% growth rate and the leverage we get across the organization. It will drive better margins.

Ladies and gentlemen, that does conclude the question-and-answer session, as well as our call for today. Thank you for your participation. You may now disconnect.