Good afternoon and welcome to the DXP Enterprises First Quarter Call. Today’s presentation is being recorded. I would now like to turn the conference over to Mac McConnell, Senior Vice President of Finance.

Thank you. This is Mac McConnell, CFO of DXP. Good evening and thank you for joining us. Welcome to DXP’s first 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 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 first quarter 2015 results. David Little will share his thoughts regarding the quarter, then we will be happy to answer questions. Sales for the first quarter of 2015 decreased 2% to $341.6 million from $348.5 million for the first quarter of 2014 after excluding first quarter 2015 sales of $11.3 million for MT&S the businesses acquired on May 1, 2014. Sales for the first quarter decreased $18.3 million or 5.2% on a same-store sales basis. This decrease was primarily the result of declines in sales to customers engaged in the upstream oil and gas industry on manufacturing equipment for the upstream oil and gas industry. The strength of the U.S. dollar contributed to the sales decline. Sales for our Canadian operations were $36.4 million for the first quarter of 2015, the change in the exchange rate had the effect of reducing sales by approximately $4.5 million. Sales by our Service Center segment for the first quarter of 2015 decreased $5.4 million or 2.4% to $225.8 million compared to $231.2 million of sales for the first quarter of 2014. After excluding 2015, Service Center segment sales…

Thanks Mac and thanks to everyone on our conference call today. Total DXP revenue of $341.6 million for the first quarter was down 2% year-over-year and I appreciate all the hard work of our DXP people who have worked as a team through these tough market conditions. Net sales in the first quarter results were in line with our expectations and reflect our in market exposure discussed during our Q4 earnings call. Our customer base during the first quarter has responded to market conditions by cutting capital budgets, seeking price concessions, delaying order placements and project timing. However our plan is to remain changed, we will continue to focus on generating cash, cutting cost were appropriate and driving gains in market share. During the first quarter, we experienced strong organic growth within Supply Chain Services, sales were down within the Service Center and Innovative Pumping Solutions. This was primary driven by softness in the upstream drilling development and completion, upstream production and mining markets. DXP’s first quarter results were also negatively impacted by the strengthening U.S. dollars, these declines are mitigated by strength in our chemical, food and beverage and MRO industrial markets. From a strategic perspective, we will use our financial resources and positive cash flow to navigate through this cycle and pursues strategic opportunities arising from the current market. We believe certain end markets will continue to be challenged in the coming quarters but we will continue to manage through this downturn focused on reducing cost, protecting our market position and delivering superior execution in solutions our customers expect of DXP. Our first quarter results reflected our end market exposure in the reverse operating leverage you get within distribution with sales decline. However I’m pleased that we generated $18.4 million of free cash flow, our leverage ratio of…

[Operator Instructions] And our first question comes from Matt Duncan with Stephens Incorporated.

Hi guys.

Hi Matt.

I want to start by just see if we can maybe get an update from you what’s your thoughts on just we look at –how do you think your revenues maybe down this year, I know last call you said kind of low single digits but I guess since that time we’ve seen energy exposure prop-up within industrial exposure from a lot of your peers and rig counts probably fallen more than I suspect most people had thought it would. So as you look at the business today, what kind of revenue decline do you think is reasonable to expect this year?

Well I guess what is little disappointing to us is that historically when oil and gas has been down, the rest of the economy does a whole lot better and not I guess we can point possibly to the strength of the dollar and say what we’re just not getting that other side of the coin which would offset by itself, yes I think it’s safe to say that if oil and gas prices stay depressed and if the dollar stays at a premium of 20%, 25% over other currencies then we’re going to be scrambling to sell everything we can. How that equates into a percentage I’m not sure, I’m trying to figure out how to grow business in a down market and it’s pretty damn hard. But I would think that our Q2 would be just really ever so slightly down from our Q1 and the reason I feel that way is we – you have to – I guess we need to understand the couple of things, first of all when we look at oil and gas and we talk about drilling, development and completion that segment of it has two parts that are hurting us none of which is IPS by the way which may surprise you. But it’s really the safety services piece where we’re all drilling rigs and things and then it’s the OEM piece in other words nobody is making frac trucks and so we’re not selling any equipment that goes on that piece of OEM equipment and so there is a whole lot of OEMs that are all in that completion and development that is causing our cutting tool business and our bearing business to be down in those sectors. Production is a different animal that’s where IPS does play of course…

Okay. I greatly appreciate the detail. So looking at IPS then there is couple of interesting things there I mean it sounds like you’re still seeing okay demand for the time being, you mentioned timing is something you always have think about with IPS, should that business just trend down quarterly through the year or is there a chance of 2Q as you complete some of the stuff you’ve been working all and could actually be up before we take that stuff down?

Yes that’s a great question because I believe that IPS is forecasting slightly up in the Q2 versus Q1 and I think they feel like they’re go to be fine for the whole year but I can’t help to think that as the second half of the year rolls around unless we start seeing $75 oil or something that they’re going to still trend slightly down.

Okay. So 2Q pretty flat and down from there that helps. Last thing from me and then I’ll hop back in to queue just on SG&A cost given that things are tracking lower than I think you thought they were going to be because I know you thought like I said kind of low single digit declines and now it’s just going to be more than that, are you guys getting more aggressive from a cost control perspective and then obviously if your revenues are down sequentially, are we safe assuming that there is going to be a decent size sequential decline in SG&A cost as well as you take fixed cost out and those variable expenses will be down?

Yes I think we have to realize how fortunate we are as a company that we have very, very high incentive program. So people will take a pay cut because we’re not making as much money possibly, or they’re selling as much quicker possibly and so lot of adjustment happens naturally but if we are looking at somebody that’s not making money, they happen to be in a bad market and their sales are down significantly we’ll then then, we will be in top of rightsizing that particular station pretty quickly.

Okay. So there is some cost control actions left to help on the SG&A side the way we should read that?

Yes not but don’t – we’re not trying to cut into people that are producers, we’re not trying to cut into things just because into we would rather try to maintain our service levels through our customers and maintain market share and maintain things the best we can, keep as many peoples, employ this we possibly can but at the same time it is fair to say that if we can afford the probability is an objective around here and so we’re going to make adjustments that are necessary to make us productive as we can be with the size, volume of business we have.

Okay. I appreciate David. Thank you.

Okay. And we’ll go next to Ryan Merkel with William Blair.

Hi guys, how are you?

Ryan, good.

So my first question can you just talk about the cadence in the first quarter did things get a little bit worse in March versus January and February and then maybe how did April work relative to March, I’m sort of wondering if we found sort of a bottom or if things are sort of decelerating?

I’ll give you the average day sales in the first quarter and January sales for business they were $5,285,000 in February it’s declined $5,174,000 and in March it increased $5,778,000 and it’s fairly typical for us the January and February start out slow and that March increases a lot.

Okay. And do you have April at this point?

It’s $5,422,000.

Okay.

21 day months then the first quarter was 63 days, $5,422,000 would be the average daily sales with that, so it’s down 7% and also is an unusual if the first month after the end of the quarter goes down a lot for us.

So what we don’t do, what is lumpy in there is capital projects and so we tend to ship out a lot of capital projects in March and that’s why it’s typically up and it’s why the first month after that is typically going to be down. So I don’t think the 7% is necessarily a fair number.

Again breakup in Canada.

Yes right, okay.

So I don’t well let me just say I personally don’t think 7% is the right number but if you do that…

Yes I will look out and careful not to extrapolate too much but it just seems like based on the other peers that I follow it seems that things have kind of continued to weaken as we looked at March and April and of course disability is very low. So I guess from your standpoint and selling through that you don’t see any signs that things could be stabilized at all, you sort of thinking second half to be a little more challenging than the first half is that right?

I think that’s right well, I really do is and the reason is because these companies are having these pretty big lay-offs and that means all companies are not having as bigger lay-offs but they got people that are core geologists, core engineers et cetera and but at the same time they’re kind of they are just same like well we know that the oil and gas business cycles every five to seven years and this is a down cycle normally last one year will give up an extra.

Right. Well let me ask you David what about the thesis that this cycle the rigs have come down faster than any previous cycle, so perhaps maybe you could see a trough in the rig count maybe now second quarter, early third quarter is that something you buy into?

A trough would have, I’m trying to understanding the question…

I make sure I understand the question before kind of answer it. What’s the trough is that, it’s going to, went down steeply and now we’re thinking it’s going to do – it’s going to just stay down or is it going to bounce back quickly?

I guess it won’t.

It will just bottom faster, so potentially before people thought the weakness here could spread into maybe 2016 now people are thinking well maybe we could find a bottom in late second quarter, early third quarter.

Well I’m all for that. Certainly just like that.

Fair enough. Fair enough.

I think – I think that everybody is pretty pleased that cash flow is king, so everybody is pleased that their cash flow is getting a little somewhat better but I think until price of oil gets more like 70, then you’re going to see activities start increasing and until you do I’m not sure you’re going to.

Okay.

You’re going to see more maintaining and still doing things and then go to zero it’s just…

I don’t know how wide spread this is but the rig count isn’t necessarily a perfect indicator, I mean there are I know one situation we’ll have a budget for the year on what they’re going to spend on drilling and now they’re cutting back more rig because they’re being so efficient drilling wells faster that the sound budget there letting goes more rig even though they’re drilling – they’re going to drill all the wells like budgeted the drill those going to do a few rigs.

Right, right. Okay. One last question for me you mentioned a bit of price deflation I think that was sort of isolated in the energy area, I’m just wondering what types of price decreases are you passing on or providing and then are you seeing any price deflation or price competitiveness in some of the other general industrial markets at this stage?

Well we’re not seeing anything unusual on the price increases for any market. In fact I’m not terrified by the oil prices, I’m frankly terrified by the strength of the dollar and the reason for that is that we’re domestic producer here and so we find ourselves also competing with other countries they just have a currency advantage.

But you haven’t seen any price deflation increased price competitiveness in your general, industrial markets yet, is that fair?

That’s fair, that’s fair.

That’s fair. Okay. Great, I’ll get back in line. Thanks.

Thank you.

[Operator Instructions] We’ll go next to Joe Mondillo with Sidoti & Company.

Hi guys.

Hi Joe.

First question so I’m trying to understand here a couple of things first off in terms of Service Center I don’t think that the supplies at all you highlighted that the 20% of your business that’s related to upstream is mostly in that sector when you reported the fourth quarter numbers and it was off a bit. So I don’t think that is a surprise, the big surprise at least for me was that IPS, you highlighted that backlog was up at the end of the year, you highlighted that orders were relatively solid actually in January and February in the 4Q call and you had a very easy comp related to the B27 issues a year ago. So I was relatively surprised what you said on the 4Q call regarding the backlog and everything and the easy comp and to see you fall short of a year ago was a little surprising for me. So could you help me understand whether order is cancelled, pushed out just trying to understand exactly how that’s also quickly because that’s generally a backlog business so even as the market falls off a cliff overnight whether I must cancellation of the orders and maybe that’s the case that should hold up for few months until the backlog falls off?

I think that’s a fair assumption but we did not have any orders cancelled that I’m aware of – we didn’t, we had some things that possibly didn’t get shipped and we see the second quarter being little better. We have a component of business there is not 100% backlog driven, we have – packaged units that we can do in the matter of a week or two and so there is not all big project stuff and then we had I was little surprised to with part of the revenues they got sort of generated with Indian – not Indian, Innovative Flow Solutions and the point there is that they feel like they’re going to have a good year. So I have a lot of stuff that’s still coming and so I don’t possibly answer than that. I don’t have every answer than that. I’m sorry.

So could there potentially be maybe possibly a timing issue combined with some of the short cycle or not short cycle but short-term type work of that business does provide sort of being more effective than maybe you originally anticipated, is that maybe a good way of looking at it?

I would think that when we’re talking about the 1231 backlog, beginning of the year backlog, there is inherent lumpiness in Innovative Pumping Solutions. So we get there has been a softness in incoming orders and softness in the stay business a little bit but the forecast would be the second quarter to be up a little or flat. So that I’d say some of it is, the orders we’re talking bout in the first quarter is just kind of the timing of when they go out, it’s clearly the new business isn’t coming in at fast we know and yes there are lot of the quotes those haven’t come through and they are clearly in the way than some of projects that we’ve been quoting that we hope that we had orders on that.

But the orders that you did see sort of in January it sounded like they were sort of solid right, so that shortages sort of fall off pretty quickly throughout the quarter as IPS?

Yes let me look at something.

I guess I can follow up with you on offline.

That will put money smarter upgrade.

One thing that I wanted to ask and you touched on it in the last quarter but in terms of pricing IPS orders have weakened it sounds like are you beginning to see significant pricing competition with that and also in addition to that, a large part of that business is Midstream focused. Have you began to see any sort of success from the upstream part of the sector sort of flowing into Midstream if this is the type of sort of numbers that we saw in the first quarter which you’re relatively most likely still feeding lot of pretty solid backlog are we going to see some serious pressure in the back half of the year IPS if Midstream starts to see some effect as well.

Well I think that’s a possibility in the sense that we’re not seeing anything Midstream that’s causing us to have concern but certainly the longer that new production is not bringing broad on stream or we’re not replacing a lot of oil production the longer this last, more likely the Midstream will be affected. There is no question about that.

Okay. And but you’re not seeing it sort of in CapEx budgets or talk of projects being pushed out or delayed nothing like that.

Not yet.

Okay. And just to clarify, I’m just trying to understand still why would that the IPS business see or seem to think that the year is going to be relatively solid relative to at least the first quarter if orders are sort of decelerating over the last few – getting worse over the last few months would that sort of reflect very challenging second half of the year, even more challenging than the first quarter. Or is there still pretty lofty backlog that is just a timing issue and you still got some work and maybe that you work off that and that hold out the business for the next couple of quarters but then maybe is more so like a first half of 2015 issue?

Our plan is when they talk about their business I think they’re talking about having a profitable business and so yes I think they’re seeing orders, they’re getting orders, they’re not getting them at the rate or instead they’re not getting them at the rate that they used to but is not going to zero. So they feel like that even though there will be some decline in IPS business that’s going to start happening after the second quarter that they’re going to be able to maintain profitability.

Okay. In regard to Service Center on the last call you mentioned that you’re sort of talks or negotiations with your oil and gas customers certainly want to see I guess lower pricing but you said on that call that a large part of that was going to be offset by lower labor cost, are you still sort of thinking about that? Is that still sort of the case and in terms of where we were in the first quarter for Service Center, is that sort of when you think about the margin at that segment, do you think will see more downside I guess into the second quarter and then maybe level out or how do you think about that?

Well what we’re willing to do, I mean we’re as a distributor, we only have so many different things, we can possibly do but we are doing everything possible to help lower the coal companies cost and first of all the oil companies are historically the people that yet pay online and they’re paying way more than they should be. So and then we have to pay people a lot too, so that they don’t go, work for an oil company. So the pay thing is being adjusted, it’s something that we’re in control of, so we can adjust that and then the other piece of that was said was well they want to have a certain type of pump and they’re insisted upon that pump. Well we’re not able to really get our manufacturers to give us a much better price and so we don’t have any savings there but what we can do is often time offer them a different pump one that maybe not as good but can still get the job done and it might have a 20%, 30% savings and so therefore we’re offering that up as an alternative and they can either take it or pass on it. .:

Right okay and then just lastly in terms of the Supply Chain Services business, how much oil and gas exposure do you have with that business. Is it significant or not?

My guess it’s actually is 10%.

Okay. I would say up 10%.

In regard to that I guess maybe 10% I know it’s a small piece of the overall business I guess but that seems to be a business that customers in certainly a downturn would be quickly possibly and you can correct me if I’m wrong to potentially reduce our cut, it’s essentially an outsourced service right. So do you see any risk of losing maybe that part of the business at all or?

So Joe you’re absolutely correct. We normally see this when a company is grows going out of business and having to fire lot of people so they will often times fire us instead and keep their own people. So that comments very, very valid. In the example we have the customer is really going the other way and that is that he is saying wait a minute, you guys are saving us a lot of money and so we have four other plants and so even though each plant may be buying less in this particular case they are ultimately buying more from us because they’re giving us more plants and but your theory is right. That can happen the other way and this particular example is not.

Okay. All right, thanks for taking my questions. I appreciate it.

And with no more questions in queue, this concludes today’s call. We thank you for your participation.

Thank you.