Good day ladies and gentlemen, thank you for standing by and welcome to the DXP Enterprises Inc. first quarter 2012 conference call. [Operator Instructions] I would now like to turn the conference over to Mac McConnell, Senior Vice President and Chief Financial Officer. Please go ahead, sir.

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 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 first quarter 2012 results, David Little will share his thoughts regarding the quarter’s results, then we will be happy to answer questions. Sales for the first quarter increased 37.8% to $252.3 million, from the first quarter of 2011. After excluding first quarter 2012 sales of $31.9 million for businesses acquired in 2011 and 2012, sales for the first quarter increased 20.4% on a same-store sales basis. Sales for supply chain services increased 24.3% to $43.3 million, compared to $34.9 million for the 2011 first quarter. Excluding 2012 SCS segment sales of $6.4 million for acquired businesses, SCS segment sales for 2012 increased 5.9% from 2011 on a same-store sales basis. Sales of innovative pumping solution products increased 136.3% to $39.4 million, compared to $16.7 million for the 2011 first quarter. Sales by our service center segment increased 28.9% to $169.5 million, compared to $131.6 million of sales for the first quarter of 2011. After excluding 2012 service center segment sales of $25.5 million for businesses acquired in 2011 and 2012, service center segment sales for the first quarter of 2012 increased 9.5% from the first…

Thanks, Mac, and thanks to you, and all our participants on our conference call today. DXP’s first quarter was a great start for the year 2012. Our markets look good, our strategies are working and DXP has a great, passionate, motivated team of DXPeople that are executing our business. I want to thank our DXP people. This is a people business, and their expertise and passion for customer service continues to make me proud to be a part of their DXP family. We have now produced nine straight quarters of sequential quarter-over-quarter growth in top line and bottom line result. Our organic sales grew 20.4%, and total sales grew 37.8%, reaching $252 million for the quarter. Without any further acquisitions, I believe we will surpass our billion-dollar goal, and with our latest announced acquisitions, we should substantially surpass sales of over $1 billion. What I am most proud of is our growing of our EBITDA margin from 8.1% in 2011 to 9.1% for the first quarter of 2012. Our goal of 10% EBITDA is very reachable. Our Q1 2012 pro forma return on invested capital was 30.2% after tax. This is one of the highest returns of working capital plus fixed assets in our industry. Our goal to capture more of the customers’ maintenance, repair, operating products and services, to improve their efficiencies and operating costs, is working. As we gain market share, the entire breadth of DXP’s technical products and services becomes stronger than any one individual division. Our multiple segments and support divisions make us unique, and giving us a competitive advantage that is winning market share against the competition. We are in the relationship and people business. Customer-driven experts at MROP Solutions accomplished by fantastic DXPeople, who want to build a relationship with our customers and to…

[Operator Instructions]. Our first question is from the line of Matt Duncan with Stephens, Inc.

First question I’ve got is looking at the IPS business, specifically, you had fantastic growth during this quarter. David, I think last conference call, you had said you thought you guys could grow 25% to 30% in that business this year. But if I simply annualize the first quarter, you’re going to be up more like 60%. So is that a sustainable quarterly revenue run rate that you just posted, or was there something unusually high this quarter?

I don’t know if there is anything particularly unusual about the quarter. I do think we’re running into a few headwinds on the delivery of products and things like that. So I think we still feel really comfortable that we’ll hit our original target. And things being good, and continuing to look good, I guess we would exceed that.

Okay, all right, that’s helpful. And then looking at the service center business, convert another location, sounds like you’ve got 15 that are in that “under construction” bucket. Now that you’ve got the people in those locations to convert those to supercenters, what’s the governor on them getting there? You said you thought you could get at least 6 more there by the end of the year. What would stop all of them from getting there?

Well, that’s really a great question, and so I’m going to have to refer to Todd Hamlin, who said that he was only going to do 6. I have to admit, I was disappointed in that. But I guess they’re feeling that they’re pretty close to those 6, and so they feel like they can commit to that. Beyond that, we’re trying to do them as fast as we can, so you’re asking a very good question. And that question is what keeps us from getting there? And it’s just a matter of when we hire these seasoned guys that bring over a book of business, they tend to only be able to transfer about half of what they think. So then, it’s a matter of working on that other half, and working on new customers. And so, it’s just how fast can they grow the territory in that new proposition. And we don’t have any magical formula for how long that should take. We feel like we’ve probably hired the wrong person if it doesn’t get done in a year. But sometimes, it happens in 6 months; sometimes, 8; sometimes a year. Sometimes we’ve hired the wrong person and, so therefore, we’ve got to get a new person. But it’s just how fast they can grow the sales.

Okay, but have you tracked for the 29 that you’ve now got, what the average conversion time was from when you brought the sales people in to when they made status?

It’s about a year average.

Okay. Moving on to the HSE acquisition, can you talk a little bit in a bit more detail about that business? It seems like it’s primarily a services business, as opposed to a products business. Do you have the ability to add safety product to their footprint? How big is that footprint? And then talk a little bit more about how you plan to go about building the business in Canada, on top of HSE that you now are going to own come July.

Let me start off with the big picture. We fully intend to go to Canada and create a DXP Canada Enterprises, LTD, and for it to have its own accounting group, own financial group, and to have a president, and for it to grow all of DXP’s product divisions, all 5 of them. That said, HSE is a great platform because they have a really neat CFO in Laurie, and a really good staff of people in Calgary. And that’s where their headquarters are. And so we see that part of it already built. And so then, what we’re going to add to it is acquisitions in the pump area, acquisitions in the bearings and power transmission area, and acquisitions in industrial supplies, et cetera. Those are all - and then, of course, HSE is a safety services company. And you’re exactly right. It’s more of a service company than a product company. We’re going to bring all those products to Canada over time. So we really envision having a $200 million business in Canada pretty quickly. And we’re really excited about that. We’re excited about HSE specifically, because that’s the one that we’re talking about here. Some of the others haven’t happened yet. So we’re looking at HSE. It has a great footprint, really across all of Canada. It’s both in the industrial sector and the oil field sector, meaning that it deals with 85% of its business is upstream, midstream and downstream. It has great EBITDA margins. The company is a group of companies that have been bought over time and they have really done a nice job of getting past all the cultural issues and everything’s painted green. And HSE is really operating as a single company very nicely. And so if you look at some of their past performance, it doesn’t look that attractive. And it’s because, like anybody that’s gone through rolling up a company, a group of companies like that, it’s got its politics and problems. And they seem to be past that. I think we seem to be purchasing the company at a really good time. So we see a lot of upside opportunity there. They provide every possible service, safety service, thing there is to do, from putting out blowout fires to medical services on a drill site, and then, industrial turnaround, et cetera. So we look at leveraging some of the industrial side of their business in the United States, where our safety services companies are strictly oil field-type operations, and we haven’t really done much in the industrial side. So we look forward to that. We’re just really, really excited. It has locations from Nova Scotia to Vancouver, so it covers the whole country.

So, David, it sounds like HSE, you sort of envisioned that as the chassis that you can now build a Canadian business on top of. So you’ll keep their back office sort of be the foundation of DXP Canada.

Right.

How quickly would you like to see DXP get to that $200 million revenue run rate in Canada?

I think we’re talking about something inside of a year from now.

Okay. Thanks, David.

But I will say this, before anybody gets back on there. Realize that we like to buy market shares, so I’m really confident about several acquisitions to make that happen.

The next question is from the line of Joseph Mondillo with Sidoti and Company.

I guess just to stay on HSE since we’re on that subject. I was just wondering, and I think you mentioned a little bit about it David, that you’re buying the company at a really good time. It seems like in the 2007 to 2010 time period on an operating margin level, you know, they were bouncing around between profitability and unprofitability. In 2011 they saw 20% topline growth, or you know, 7-plus percent operating margin. Could you talk about a little bit more specifically on how that company, you know, brought itself up and, you know, what happened in 2011 and talk about the market set that it sells into?

First of all, again I think they have to look at it as a bunch of independent companies that were put together, so they wanted scale, but they didn’t know how to capture it. They wanted one stop shopping, but they didn’t know how to execute that. And so, as they built a singular platform and truly took all these other entities and created one company called HSE. That’s not an easy thing to do, and it was time consuming, and it was expensive. I would say they probably would have got things turned around a bit faster had there not been a recession in Canada, just like there was in the rest of North America. So, I think it’s unfair to look really at their past. We’ve done a lot of due diligence in terms of riding around, and I can see the excitement at HSE. I believe that they feel like they’re starting to win. And I believe that people and winning are a big thing, and so I think we’re really getting a really good company.

So, a large part of it was just due to sort of some inefficiency amongst all the different businesses that they had, and you think that they’re sort of on track now?

Yes, I think, you know, just a little example. You’ve got A, B, C, company over here and B, C, D, company over here and they have shower trailer, and one company doesn’t know the other company has the shower trailer, it’s just sitting there, it’s not getting rented, so they may build a whole new shower trailer when all they really had to do was rent this one that they already had. I think there’s just issues like that, that when you’re consolidating companies and putting them all together and being able to share the information, it’s going to make you be able to run your business on a smart basis.

When you integrated with DXP and you go up there and, you know, do what you want to do with the 5 different business and such. What kind of profitability do you foresee that business going to compared to where they are today?

We truly believe that Safety Services Division, that the Safety Services Division can be a - they’re roughly around 13% EBITDA margins, but it can be from north of that to as high as 20. We picked 20 because we think that’s where total safety is, which is the largest player in this industry in North America roughly, I’m guessing because they’re a privately held company around $400 million. We believe adding our Safety Services with HSE will make us be a number two player, and so we think, you know, we just see margins being able to improve, and so I thank you for asking that question, because we think they’re going to go up, and maybe as high as 20% over time.

Okay, great. And just turning back to the IPS segment. I was wondering if you could provide the backlog at the end of 2011 versus the end of the first quarter?

We don’t give backlog information, but I will tell you that we had a significant quarter of shipments and yet the backlog continued to be up a little bit.

And could you specifically maybe get into, a little bit specifically in terms of the markets and your customers, what’s driving that? I mean, you had such a big quarter in the first quarter in terms of shipments, and you’re saying that the orders were even on top of that. Maybe just give a little more color on that?

Yes, I think we’ve, as we stated before, you know BP had the big oil spill so we had all the offshore stuff that went to zero, and it’s coming back. In the meantime we’ve built a better infrastructure for onshore type fabricated modular pumping systems. So a combination of the offshore and the onshore business being good together has resulted in a lot more opportunities.

Lastly, I just wanted to ask, Mac if you could just give what you had in cash and debt at the end of March.

Cash was $3,522,000. Debt was $133,398,000.

And the interest rate you said was 1 ½% in the first quarter, and that should be …

The debt outstanding on the line of credit at March 31st was at 1 ½%.

And that should be going up to 2 to 2 ¼% or 50 to 75 basis points with the new credit facility, is that what you said?

Along with, actually borrowing on the credit facility to fund the purchase of HSV.

Okay, great, thank you.

Mac, just to answer that question a little. As we’re modeling it, we don’t think we’ll close on HSV till the end of June, or the beginning of July. So, I would say interest rates for the next quarter will stay similar.

The next questions if from the line of [indiscernible].

I was curious to know, I was just sort of looking at, you know, some of the operating income. You had said for the IPS the operating income had grown 189% over last year. And just doing some back of the envelope, that looked like it would represent a margin of about 13.7%, and that’s down from the previous year. So, I was wondering if there was anything within that number that would cause the margin to go down, or if I’m looking at it wrong?

Well the operating margin for March for IPS was 21% and the operating margin for the first quarter of 2011 was 17%.

So for IPS it was 21%?

Yes.

Do you have what the operating income was for the segments? Can you give that?

Sure.

Acquired for service centers? I thought he wanted for all of them.

Yes please, all of them please.

Okay for service centers was $18.3 million, for IPS is $8.2 million or $8,248,000. Supply Chain Services $3 million.

And, just real quick with HSE. You said it was going to be accretive. Do you expect that to be this year or what’s your time frame for that? And maybe you can discuss what you expect that to be? Or maybe a little bit more quantifying it.

The results of operation should be accretive from day one after we buy them. The only special charges would be somewhere would be things like legal fees, due diligence costs, assistance and that sort of thing would be written off.

[Operator Instructions]. Next question is a follow up question from the line of Matt Duncan with Stephens Capital Management.

Guys, thinking with that last question, are you willing to give us a range of annual EPS discretion you think you can get from HSE, or from a GAAP EPS perspective?

I am, I don’t know if Mac is. We’re going to find it somewhere. It’s a - yes, we’re going to give you a range of $0.10 to $0.25.

Okay, so…

It pretty much knocked the discretion out the gate, and obviously there is going to be some revenue synergies down the road with the tuck-in acquisitions it sounds like you’re targeting to add products in Canada.

Yes.

Okay, looking at a couple other reason acquisitions, how are both Kenneth Crosby and CWRod performing relative to the expectations you add when you bought those 2, and can you tell us how much they added to earnings this quarter?

The earnings addition for really all of the acquisitions - the Mid-Continent and [indiscernible] Power de minimus, it was about $0.07 a share in the first quarter, I’ll let David answer how he thinks they are doing compared to…

Well, CWRod’s is doing everything we thought they would and more, their sales are actually up, their profits are in the 14% range which we had hoped. Crosby is - was that the other one?

Yes.

Okay, half of their business was integrated supply and half of it was traditional branch based business. The traditional branch based business has gotten its margins up and it’s doing really well, we’re really pleased with that segment. The other piece has not performed as well which is probably holding Supply Chain Services back a little from what we’ve might have hoped they would have done. I booked they lost a Johnson & Johnson, and maybe one other account.

David, how big was J&J for them?

I don’t know - I’m sorry, I don’t know. I know that - you know, it hasn’t caused Kenneth Crosby to be unprofitable, they’re making money still overall, and…

Hey David, when did they lose that customer? Did that happen during the quarter sometime?

That happened during the first quarter.

Okay, so, should their business be up sequentially in the 2Q taking into account the loss of the customer, or was it a significant enough customer it’s going to put a dent in their revenues?

No, no they should be sequentially up.

Okay, that’s what I’m getting at, okay. Okay, and then last thing I’ve got is - you know, looking at your balance sheet, you have $220 million dollars of debt give or take if you do sort of pro forma for the acquisition of HSE, or that 2.3 times lever. So, as you start to think about acquisitions going forward, are there other larger ones in there that might require, you know, some different type of funding other than using that, or do - are most of the acquisitions you’ve got going forward small enough you think you could make them and still get that leverage down?

We - we feel like that their present leverage is okay, we feel like the - our bank capabilities are okay, for a couple of other things that we have on the table. I think if something was to present ourselves it was a little larger in size going forward that we would have to evaluate whether or not we wanted to raise equity to do that, or if we wanted to pass. So, we’ll just - you know if it’s accretive and we can raise equity to accomplish our goals of now going on to be a $2 billion company, then certainly we would do that.

Okay, is there a level of leverage, David, sort of a max leverage that you’re comfortable with at this point?

You know, the bank will let us go to a 3 1/2, we’re really - we really are really comfortable with anything a 3 or below.

The next question is a follow up from the line of Joseph Mondillo with Sidoti & Company.

I was just wondering the supply change services margins seems to be picking up a decent amount, it’s up to 7.6%, it was, you know, 6% in 2011. Should that be sustainable throughout the year, or what’s going on there?

Yes - you know their target operation margin is 7 to 8%, they’ve worked hard on their cost structure, and they’ve - in giving all of one computer system is helping to drive in some efficiencies that I’ve talked about. So, whether it ever gets much higher, you know, I don’t know what Mac or me have right now. But from a percent point of 7.4%, so - 7, okay. So, I think, you know, there may be - I think it’s the [indiscernible] - your question is this sustainable, and the answer to that is yes. Is there a lot of room for improvement, you know, we will have to see.

Okay, thank you.

One of the things that I’ll point out - the reason why we like this business is it doesn’t require a lot of working capitals. So, it doesn’t require a big investment in it to grow the business because the customer owns the inventory, and so all we’re doing is really have receivables - the customer has bricks and mortar, the customer has the inventory, and so, we’re just - only working capital item is the receivables and then we get to subtract payables from that. So, its working capital requirements is pretty minimal.

Okay, actually, one more question, and then - it’s regarding the service center business, organically growth rates have - obviously comps have been tougher, but organically, growth rates have been slowing - could you just comment on that, and what you are seeing organically? And how the month of April has trended, and what you expect going throughout the year?

Yes, I think comps are getting tougher, and you know, I don’t think we’re looking at markets out there that are growing 20% any more. I do feel like they are growing, and so, I see us - I see us incrementally, sequentially still growing our business from quarter to quarter. So there is growth - is it as, you know, substantial as it was when we came out of the recession in ’09? I don’t think so - I guess that’s how I’d answer that question. We do have some strategies to take market share away from other people, so we do - we’re not giving up in any form or fashion. Our goal to have organic growth of 10% plus, so - and of course this year, based on how we started we shouldn’t have any trouble doing that.

And the next question is from the line of John Cooper with BB&T Capital Markets.

Just a quick question kind of similar on the EBIT margins and the segments - looking at the MRO, it looks like it came in around 10.8 - and it looks like it’s below, kind of that 11.2, and you had a 12.4% last year, is that primarily acquisition related stuff, or is there anything else going on there in the MRO segment to drive down profitability margins?

Our sales last year was 11.2 for the first quarter.

Right, and it’s 10.8 this quarter, right?

That’s correct.

And is that just blaming on acquisitions that are lower margin, or is there anything else going on there?

I guess - this is David, if -I think he realized that and so we were looking at our allocation of SG&A, but I think it’s more a function of the fact that we have so many supercenters and progress that their expenses are probably proportionally a little higher.

Thank you. There are no further questions at this time. Ladies and gentlemen, this does conclude the DXP Enterprises’ First Quarter 2012 conference call. You may now disconnect and thank you for your participation.