Good day, everyone. Welcome to the DXP Enterprises, Inc. Second Quarter Conference Call. Today’s call is being recorded. At this time, I would like to turn the conference over to Mac McConnell, Senior Vice President of Finance. Please go ahead, sir.

Thank you. This is Max McConnell, CFO of DXP. Good evening and thank you for joining us. Welcome to DXP's second 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 can differ materially. A detailed discussion of the many factors that we believe may have a material impact 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 second quarter 2014 results. David Little will share his thoughts regarding the quarter results. Then, we will be happy to answer questions. Sales for the second quarter increased 73.7 million or 23.9% to $381.6 million from the second quarter of 2013. After excluding second quarter 2014 sales of 60.6 million for businesses acquired, sales for the second quarter increased 13 million or 4.2% on a same-store sales basis. This sales increase is primarily the result of increases in our Service Center and Supply Chain Services segment, 8 million and 5.1 million, respectively, on a same-store sales basis. Sales of Innovative Pumping Solutions product increased 37.6 million or 71% to 90.6 million compared to 53 million for the 2013 second quarter. After excluding 2014 IPS segment sales of 37.8 million for businesses acquired, IPS segment sales for the second quarter of 2014 remained flat from the prior corresponding period on a same-store sales basis. Sales by our Service Center segment increased 30.9 million or 14.2% to 48.8 million compared to 217.9 million of sales for the second quarter of 2013. After excluding 2014 Service Center segment…

Thanks, Mac. Reviewing our second quarter results, we are pleased with the progress we have made since our first quarter and we still believe we have a lot of work ahead of us. We experienced 24% sales growth year-over-year and saw improvement in both Natpro and B27. Overall, DXP grew organically 4% with the acquisitions adding 61 million for the quarter. EBITDA year-over-year grew 25% from the quarter with margins of 9.43%. And our after-tax return on invested capital was 28% for the quarter versus 31% from the same period in 2013. With our progress, we continued to see areas we need to shore up including targeting the right sales growth opportunities, profit optimization, working capital management and continued improvement of our safety service division, Natpro and B27. As it pertains to Natpro and B27, for the quarter Natpro had a $0.01 per share dilution versus $0.05 dilution in the first quarter while B27 was $0.09 per share accretive versus $0.06 per share diluted in the first quarter. At Natpro we have begun to correct the engineering issues experienced in Q1, implemented some workforce reductions and have added some new management depth. Our IPS team from Houston continues to spend increasingly more time with our team at Natpro sharing best practices and beginning the early stages of leveraging engineering. As we discussed on our last call, we believe this is at least a six-month process and we are seeing progress week-to-week and month-to-month and we look forward to continued improvements through the remainder of the year. Additionally, while we are still in breakup season in Canada, as we go into the second half of the year, we are encouraged by the improving rig count and the overall tone of the market. As of June 30, 2014, Alberta rig count was…

Thank you. (Operator Instructions). We’ll take our first question from Matt Duncan with Stephens. Please go ahead.

Good afternoon, guys.

Hi, Matt.

Hi, Matt.

So things sound a little better this quarter than last. It looks like you guys are seeing the energy side at least pick up quite nicely for you. Would that be fair to say?

Sure. I think that’s fair to say. I think we’ve done a lot of work operationally and things are improving and headed in the right direction.

So just a few detail questions here. On B27, that was a pretty significant increase in revenues sequentially there. What drove that? And as we look at how to forecast that business, should we think that it's going to continue to put up revenues similar to what you had this quarter or was there something in this quarter that may not repeat?

No, we feel like they had a lull in the first quarter and then the second quarter they certainly had a nice increase like you said. A lot of it though was also an increase in their gross profit margins which resulted in much higher EBITDA margins which was nice. And then I think just far as projections are concerned we – even if we get some significant orders that we’re working on this year, most of that is going to affect 2015 so we think that they’re going to be pretty flat for the rest of this year.

So flat around that 43 million number?

Yes.

Okay. And it's now $0.03 profitable for the year. I think it lost $0.06 in the first quarter, but it was $0.09 accretive in the second quarter. Are you expecting the margins in that business to be pretty similar through the balance of the year as well as what it was in the 2Q?

Yes.

Okay. So we're now thinking that business is going to be profitable for you this year if I call it $0.20, give or take?

Yes.

Okay, good. In terms of the Service Center uptick in organic growth, is it fair to say just kind of going back to the energy side of things that it's really energy that's driving that and industrial, food and beverage are the things that you said are still pretty flattish, David?

We did see mixed results in the manufacturing sector and oftentimes I thought this was interesting. The other day I was talking to our new acquisition in Chicago and they were talking about how manufacturing was really kind of picking up there and I was like, wow, I mean like automotive? What? And they said, no, oil and gas. And I went, oh, okay. What do you mean oil and gas? Oh, yes, we have cutting tools [throughout] (ph) manufacturers and their products are all sold in oil and gas. So, I think there is – when you look at manufacturing, I guess it depends on what markets you’re looking at and so those – there’s some bright spots there. But certainly the biggest growth market we have is oil and gas.

The fact that when Supply Chain had really good sequential good Q2 to Q1 and I was expecting it all to be a new customer and it turned out no, the sales growth was all from just a variety of existing customers which to me points to GDP.

Yes, that sort of was going to be my next question, Mac. I mean that segment tends to be a decent leading indicator because in that business you've got a 100% of a plant's MRO spend. So if you're seeing that kind of sequential improvement there, is there anything specific to the customers that you saw that uptick in, maybe something they're doing or do you guys think maybe that's an indication that there's some improvement coming on the manufacturing side?

Interesting enough. I mean it was a variety, so that 4.8 million increase was spread among a bunch of customers and the biggest one was food and beverage. But it was across the board. We also – Halliburton – we think the oil and gas has shown signs that that might be picking up.

Okay. Last thing and I'll hop back in queue. David, the organic growth number at IPS if I'm going to nitpick being a little bit flat this quarter I'm sure is a little different than maybe what you had expected. What do you think caused that to flatten out? Is it just a function of you had a really good 2Q last year than you were up against a tough comp? Was it timing of package completions? What's your thought on what the growth ought to look like in that segment? Why did it flatten out here?

Yes, I don’t think it’s – you’re right. It’s sales were flat but we’re not expecting it to flatten out. We’re expecting to finish the year strong.

Okay. So it's probably timing up against the tough comp. There's really nothing to read into that. And I know that the nature of that business is – it can be pretty lumpy anyway, but it sounds like the quote activity, all that stuff is still very positive for you. That's the main thing.

Right.

Okay, thanks. I'll hop back in queue. Thanks guys.

(Operator Instructions). We’ll take the next question from Holden Lewis with BB&T. Please go ahead. Holden Lewis - BB&T Capital Markets: Great. Thank you. Good afternoon. The big delta against my model is that 17.4 IPS margin which obviously was significantly improved over a point I think we've seen for probably six, seven quarters. As you've indicated you think that it's sustainable but can you give some color as to why it leapt so much from Q1? Is that sort of the organic business, the acquired business? Is it just mix? How are we thinking about the big jump in that metric?

I mean it is clearly mix. Each order is a custom-made package. We’re dealing with the competition. We’re dealing – when did we bid it in the process? Some packages were quoted a long time ago, some more recently and so they each vary. I mean the answer that I got was that the midstream business is really strong and that’s where most of the business is and it was better. Holden Lewis - BB&T Capital Markets: Okay.

Holden, I wouldn’t read too much into thinking that our – going forward that our GP margins are going to be that high every quarter. I think we have to take a – when we look at gross profit, we look at operating margins. We kind of need to take an average for the year kind of approach, because – we’ll take the job at 20% if we think that’s what we have to do to get it but the next one and it will be the same kind of equipment, we can get it at 40%. So you just kind of have to average that. Holden Lewis - BB&T Capital Markets: Right. Well, I guess that's what I was going to ask is I mean did you know – because it is obviously a bit of a percentage completion type of business and that sort of thing. But I mean did you know coming out of Q1 into Q2 that this was the margin that you would get, just because it is a backlog for percentage completion business? How much visibility do you have into the Q3 and the back half margin?

We don’t look at that but we could. I mean, you’re absolutely correct. You could sit there and say, okay, David, listen, we have these 10 jobs we’re working on. What is the margin that we expect to make on those? And he could tell us and then therefore we could calculate all that out and come up with an answer for you. But I’ll just tell you we don’t want to do that. Holden Lewis - BB&T Capital Markets: Okay, but the way you would suggest we approach this is not to run the 17.5 out for the rest of the year, but maybe to sort of think about 15-ish type number for the rest of the year just to kind of averaging Q1 and Q2. Is that the thought or is there some reason…?

That’s my [fault] (ph).

You can kind of figure this out if you look at it. The operating income percentage for IPS when you back out the acquired businesses was 20% for two quarters in a row and we’ve achieved 20% before. So that’s a really good margin for that business. It’s also not one that we haven’t achieved before when we’re busy. I mean there are a lot of fixed costs that go into cost of sales. Holden Lewis - BB&T Capital Markets: Right.

In fact they could be running more shifts, so in theory they could do better. I’m not trying to say they are but part of it is that they’re very busy right now and they’ve moved into a time period where the jobs are selling. We’re quoted more recently in a busier time and so they’re back to – really I think they’re back to where they’ve been sort of before, but that’s not to say next quarter it could be down as a margin percentage because everybody’s (indiscernible) is unique. Holden Lewis - BB&T Capital Markets: Right. The core IPS, that was at about 20% in both Q1 and Q2?

Yes. Back in that acquisition the operating income was 20% in both quarters. We’ve done that before and it has been down. So I’m trying to say this is good but it’s not unusual. Holden Lewis - BB&T Capital Markets: So if the core IPS was consistent from Q1 to Q2, but you had a big leap from Q1 to Q2 overall, which business did you see that leap occur in? Was it B27?

Not B27 and Natpro, even though Natpro was still diluted it had a nice increase. It improved to having positive operating income. I mean it’s operating income grew by $900,000 between the quarters and B27 generated 3.8 million more of its operating income. Holden Lewis - BB&T Capital Markets: Okay, fair enough. And then also sticking with the margin theme, in the MRO segment, obviously at 10.6 when it was low. Was it kicked down a little bit more again in MRO, kind of what's going on there? It feels like it should be a better margin business than that. Can you give us some insights into sort of trend, whether you think that margin has bottomed? How are you thinking about that?

Well, I think not all of it but most of it relates to safety services not products. The safety services has the potential having 40% gross margins. So we lost a significant account. Canada’s just gone through kind of the falling out, breakup for their deals. So margins were down in my opinion because of those two events. Now, we’ve replaced a lot of the large account we’ve lost and sales are trending back up to them and then the Canada piece is coming out of their slow season. So I would hope and expect margin going forward.

It’s a higher margin business and the higher margin business declined in sales and in percentage. So it had sort of a big impact on the gross profit percentage.

Again because of fixed overhead. Even in cost of goods sold we’re renting people and we’re renting equipment. And if we’re not 100% utilized then margins will be negatively affected. But most of the MRO business is running stable. It still goes to safety services, it still goes to margin is kind of the thought. Holden Lewis - BB&T Capital Markets: Right. All right. Thank you.

We’ll take a follow-up question from Matt Duncan.

Hi, guys. So Mac, do you have the month-to-month sales trend through the quarter? Did you guys see the sales momentum kind of build as the quarter went on? And how does July look?

We did see the trends. The sales per day in April were 5.6 million, 6 million in May, 6.552 million in June.

Okay. And then how does July look? I know that the last day of the month, which is today, could swing that pretty significantly. But just in terms of general tone of business if things continue to look like they're picking up a little bit?

Yes, I believe that and we see that in our short window of backlog which is kind of increasing.

Okay, good. And then last thing for me, David, last call, it sounded like you might step back from M&A for a little bit here to just sort of make sure you had all your recently done acquisitions sort of fixed, if you will. It sounds like you're feeling a lot better about Natpro after you've made some changes there. B27 bounced back pretty nicely. How are you feeling about M&A right now? What's the pipeline look like and sort of what's your appetite there?

The pipeline never went away and so we’re back after acquisitions again.

Would you expect to get something closed before the end of the year?

Probably.

Okay. All right, thanks guys.

Thank you. With no questions remaining, that does conclude today’s conference. We thank you all for your participation.