Good afternoon. My name is Tim, and I will be your conference operator today. At this time, I would like to welcome everyone to the DXP Enterprises 2018 Second Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After our speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Mr. Kent Yee, Chief Financial Officer, you may begin your call.

Thank you, Tim. This is Kent Yee and welcome to DXP's Q1 2018 conference call to discuss the results of our second quarter ended June 30, 2018. Joining me today is our Chairman and CEO, David Little. Before we get started, I want to remind you that today's call is being webcast and recorded and includes forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis are contained in our SEC filings, but DXP assumes no obligation to update that information as a result of new information or future events. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our earnings press release. The press release and an accompanying investor presentation are available now on our website at ir.dxpe.com. I will now turn the call over to David to provide his thoughts and a summary of the second quarter.

Thanks, Kent, and thanks to everyone on our 2018 second quarter conference call today. As always, it is privilege to share DXP's results with you on behalf of over 2,577 DX people who work hard every day as one team driving stakeholder success and value creation. Through the first half of 2018, DXP is off to a great start and I'm extremely proud of the team's performance year-to-date. During our call, I will start off with the summary of my thoughts and Kent will take you through the key financial details. After our prepared comments, we will open it up for Q&A. Reflecting on where we were at this point in 2017, we have just started to turn the corner from the downturn we experienced in fiscal year 2015 and 2016 and momentum we're starting to build. Today after six quarters of sequential sales increases, we have seen the benefit of our positive attitude, customer service excellence and winning culture. In terms of the present operating environment, the ISM and PMI manufacturing indexes which gives us an indication of how DXP's broad industrial markets will perform continuously show expanding business strength. Demand remains strong and consistent. The PMI index, which has moved from March reading of 5% -- 59.3% to a rating of 16.2% for June. The trend continues to be above the average of the last 12 months of 59.1%. This supports the strength we are experiencing and sequential sales growth within our service centers as we experience growth in our broad industrial regions including Southeast, Northeast, North Central and Alaska. We remain excited to see this momentum on the industrial side of DXP. Additionally, the Metalworking Business Index while all record high continues to show spring with the reading of 57.5%. This is a deceleration from March, which…

Thank you, David, and thank you to everyone for joining us for our review of our second quarter financial results. Q2 was a strong quarter for DXP and complete the first half of portfolio 2018 on a positive note. The Q2 2018 financial results reflects continued sales growth and marks our sixth consecutive quarter sequential sales increases or quarterly compounded growth rate of 7%. The second quarter performance includes one-time items including a gain related to the sale of our corporate headquarters that closed on June 15th and cost associated with the re-pricing of our Term Loan B, which we closed on June 25th. Adjusting for these items, DXP's performance still remained in line with our key financial metrics and expectations and keeps us on the path to the smart recovery we have been focused on as a DXP team. Total sales for the second quarter increased 24.1% year-over-year to 311.2 million. Adjusting for the 12.4 million Q2 sales contribution from ASI, organic sales increased 19.2%. Total sales growth for the second quarter was supported across all three business segments. Reflecting the continued expansion we’re seeing from existing and new customers. Average daily sales for the second quarter were up 22.2% over Q2 2017 over 4.5 million per day Q2 2018 versus 4 million per day in Q2 2017. Adjusting average daily sales for ASI, ADS for Q2 increased 17.3% versus Q2 2017. Average daily sales increased 7.1% sequentially from Q1 of this year. The overall growth reflects what we are seeing in some of our key end market indicators to the first half of 2018 including the rig count, U.S. oil and gas production, drilling, the Metalworking Business Index, the PMI and the overall average increase in the price of oil. In terms of business segment, all three experienced…

[Operator Instructions] Your first question comes from line of Steve Barger with KeyBanc Capital Markets. Your line is open.

This is Ryan on for Steve. Just start off with the obvious one that comes first. Can you give the organic daily sales rate by month, and in regard to 3Q, what you saw in July?

Yes, absolutely, average daily sales kind of going to the quarter kind of are as follows; for April is $4.6 million, for May $4.8 million, and then for June $5.2 million, and for July based upon a sales flash $4.7 million.

Okay and then really strong performance in IPS this quarter. So I was just wondering, was there any one-time items impacting that whether just a huge amount of project deliveries or what kind of driving that performance?

We use percentage completion, so we don't kind of smooth out any one job affecting us that big of amount, and there really wasn't any. Our backlog continues to grow our throughput through our shops continues to grow and of course as our utilization rate goes up, so this back overhead applied and things that helped us to make more money on each job starts happening. So, we're just recovering nicely and look forward to continuing growth.

Yes, Ryan, just one think I'd to add -- the only thing I'd add to David's comments there just to kind of put some numbers on that because I know we typically talk about it. It is our IPS quarterly average backlog year-over-year is up 62.8% and sequentially up 17%. So I think last quarter was -- we reported similar numbers. And so it just continues to grow, just to support what David just said, so.

Okay. And then gross margins has been big focus for you guys and it sounds like you potentially have more room for improvement, just and in regard to 3Q, historically gross margins are down about 20 basis points from 2Q. Do you think the tools that you have implemented and maybe some benefits from mix, you think you could maybe outperform that, that historical average and potentially see flat to improving gross margin sequentially in 3Q?

We do have a focus on that and thanks for noticing. We -- I would say that we're comfortable with the flat -- we would be comfortable with increases, if it wasn't for the fact that, we're kind of having a series of price increases from inflation and price increases from tariffs a little bit and it’s not been a problem, they’ve all been real manageable. But there’s kind of a timing of an event, they kind of hit us immediately and then we pass them on weeks and even months later. So, I think we have a little bit of headwind with that. It’s ultimately a good thing. Our inventory goes up. The value of it goes up and an increase, sales go up from an inflation point of view. So, it’s really good for distribution, but -- and getting margins up, my goal is to give them to 30%, but it’s going to take us a while and get there. So not getting too aggressive for the third quarter, LACT's okay maybe up a little bit.

Okay and then just two more for me. Just curious to hear, what you’re hearing from customers in the Permian and regarding takeaway capacity constraints? Did they see that impact and completion activity at all in that basin?

So first of all I think you need to understand them -- I get that you may want to use this for other companies and things. But the magnitude our backlog for the Permian Basin is less than 4% of our total backlog. So, it’s not a particularly gigantic number for us. We have seen that backlog slip a little bit over the last few months. Our total backlog is going up, but specific to what you’re asking about, I guess, in the Permian Basin, it’s declining a little bit. That said, it’s still substantially over what it used to be a year ago. And so, we’re not thinking the people are moving out or going to other basins and things like that. We do see a good deal of activity there and we’re happy to serve it now. We add as you know, we make large pumps that go on pipelines and gas pipelines and oil pipelines. So, to the extent that we fix some of these problems we’re quoting a lot of large, large jobs. So ultimately all of that will help us. But do we have a temporary decline? I’m going to have to agree with that a little bit.

And then my last one, EBITDA margins came and a little bit above 9% this quarter. And Dave I’m just thinking if demand trends hold you start to see some more pricing. Do you think that 10% margin goal, you’ve been talking about is maybe achievable in the back half?

Well, we’ve achieved it before. And so, it’s definitely achievable. We’re -- if we take -- first of all part of that 9% did have a gain on the sale of a corporate building. We’re consolidating into another building, which is a good economic move for us. And so, it’ll have benefits going forward. But we did have a 1.3 or 4 gain on that, so when you back that out, we really like it 8.5 or so and is definitely our goals to get that up. I think when we think about that though, it's kind of a combination of revenue growing and expenses not going as fast. So, we get percent of sales there that this is favorable. And then the others just gross profit margins. And as we grow from being in a buyers' market to a little bit more of a sellers' market, it takes a while to adjust our people attitude about that. But we should see incremental gross profit margin improvement, but it's, not forgot when we say the force kind of like 20 to 25 basis points a quarter kind a deal. So if we do that and then sales are flat to come down a little bit based on revenues then it will take multiple quarters to get there.

And there are no further questions at this time. This concludes DXP Enterprise 2018 second quarter conference call. You may now disconnect.