Welcome to the DXP Enterprises Incorporated 2013 second quarter results conference call. (Operator Instructions) I would like now to turn the conference over to our host, Mac McConnell, Senior Vice President of Finance and Chief Financial Officer. Please go ahead, sir.

This is Mac McConnell. 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 I 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, and DXP assumes no obligation to update that information. I will begin with a summary of DXP's second quarter 2013 results. David Little will share his thoughts regarding the quarter's results, then we will be happy to answer your questions. Sales for the second quarter increased 17.6% to $307.9 million from the second quarter of 2012. After excluding second quarter 2013 sales of $45.3 million for businesses acquired, sales for the second quarter increased $700,000 or three-tenth-of-a-percent on a same-store sales basis. This increase is primarily the result of two more business days in the 2013 second quarter compared to the 2012 second quarter. Sales of Innovative Pumping Solution products increased $17.8 million or 50.5% to $53 million compared to $35.2 million for the 2012 second quarter. After excluding 2013 IPS segment sales of $7.9 million for businesses acquired, IPS segment sales for the second quarter of 2013 increased $9.8 million or 28% from the second quarter of 2012 on a same-store sales basis. This increase resulted from increases in capital spending by our oil and gas and mining related customers. Sales by our Service Center segment increased 18.4% to $217.9 million compared to $184.1 million of sales for the second quarter of 2012. After excluding 2013…

Thanks, Mac, and thanks to all participants on our conference call today. The gross sales is 17.5% and net income 12.91% year-over-year, and sequentially sales growth of 6.15% and net income of 3.91%, in this economy of low inflation and low GDP is a nice accomplishment. How we got there and how it could have been even better is exciting. First of all, we all know that second quarter in Canada is the slowest quarter, and then you add the unfortunate flooding and bad weather, sales ended up being much lower than we expected. We look forward to increase sales through the rest of 2013 from our Canadian friends. Second event is the oil field improve the productivity of their drilling and production, which had a big effect on our OEM customers, and they have had to slow their production of equipment to reduce their over billed supply. The good news is we think this is over, and as we see signs for them ramping up production again, which is good for us. Third is our Supply Chain Services, which has struggled with customer consolidations called by the flat market, which is bad. But the same flat market or slow growth is causing new customers to look at our services, because we can save them money, which is good. The fourth is our acquisition problem, as how we will grow even in the flat market and our pipeline of targets is growing, which could be caused by the world's slow growth. In conclusion, we are optimistic about organic and external growth in revenues in the second half of the 2013. As to the bottomline and EBITDA margins, we expect gross margins, which were down 1% for the first quarter to be under pressure caused by market conditions being soft. As…

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

First question I've got, Mac, how did the sales trend months-to-months through the quarter, and what's July looked like for you guys. It sounds like from the press release maybe you saw a little bit momentum building in the third quarter?

In April 2013, 4,508,000; May 4,705,000; June 5,262,000. And of course, the last month of a quarter for us, we tend to ship more of our Innovative Pumping Solution packages so that they get skewed a little bit.

And as you look at the service center business maybe is that showing a continued progression in the July, I mean obviously it probably would normally in any way at the end of the quarter to the first month of the next, when it might take down a little bit. But are you still feeling good that that momentum can continue in the back half?

The packaging business, Innovative Pumping Solutions comes into play, and if the business was really strong in June and wasn't strong in July, which is what we had expect, the rest of the business looked like it was flat to up. I mean it look it build the whole a bit.

And then a couple of questions on some of the acquisitions, and I don't guess I remember hearing about the Tool-Tech deal. I don't think you guys issued a press release on that, was that something you guys have just closed?

We closed yesterday, last night actually. The wires were sent at 4 o'clock yesterday.

So Tool-Tech. closed last night. And then the revenues for that then are going to kick-in as you'll have two months of revenues there.

Yes. That's correct. And Alaska Pump was on August. I mean, July 1 or something like that. It was a July acquisition.

And then on Natpro, I guess I remember when you guys closed that deal, David, that one was a little bit more of a service center based business and little less on Innovative Pumping Solutions. But it looks like this quarter it was about fifty-fifty. Is that what the mix is likely going to be like there going forward? Or was just maybe a seasonal deal in the service center business, where Canada would soft in the 2Q, and then it should get a lot better for their service center business for the balance of the year. How do you think the revenues are going to split up at Natpro going forward?

I think that that they think that their Innovative Pumping Solution fees is the part that's going to grow. And I feel pretty good about it growing pretty substantially. And we feel pretty good about helping them make more money at it. And so I guess we had about two months, little over two months with them on our financial, so we should see a little more incremental business going forward when we get a full three months. And then they fell pretty good about their growth prospects through the year. Again, they have a soft second quarter in Canada, just like everybody else, you can ship that stuff right now. They are on a percentages completion, so they'll have to ship those Innovative Pumping Solution.

David, is there any way to look at the revenue that they had in Innovative Pumping Solutions in car valve, how much of that is revenue they probably would not have had, if you have bought not them, was there some business they were able to win and they were able to get and record a revenue in the quarter after being bought by you guys?

I don't think we helped them at all. They've only been in that packaging business for two or three years. They have not been in the business for a long, long time. So there are still having a bit of learning curve at what level we think we can help them, and along the best practices, but also and how they buy equipment and help them with our purchasing power.

On the gross margin comment that you made, if I remember correctly, the Canadian business, the gross margin is going to be quiet a bit lower there in 2Q than in 3Q and 4Q. So I want to make sure I understand your comment correctly that your margins might stay under a little bit of pressure. Is that would you expect to see the normal seasonal uptick in gross margins percentages in Canada? And other than that not really get any improvements or maybe it will be a little better than in the 2Q over the balance for the rest of the year, but not alike. I guess I'm trying to understand for the balancing that out with, I know you've got the pricing software that you've been putting in place last year and how that's helping?

We're doing everything possible to get our margins up, so we're not losing focus on that. And I think you described it pretty well, Matt. I think that we did, as Natpro's volume picks up, they leverage fixed assets and they are manufacturing facilities still operating. Their margin should get better. I think I know David Vinson and those guys are having (inaudible) up there to help them. And I think then the negative is, it's a buyers market, not the sellers market. I think it's, that LACT units tend to have a lower margins. So how all that mix works out. Things we're doing to improve and then thinks that we know our product mix are bring us down a little bit, I would say generally speaking that if we continue to have slow growth that helps a little bit versus no growth or negative growth. So if I will be guessing up, I would say there might be a little better room for improvement, but definitely not a lot.

And then last thing from me and I'll hop back in queue. Just in terms of organic growth expectations for the back half for the year. I think you're tracking down a little less than 1% combining the first and second quarters together. It sounds like obviously things are trended in the positive territory. How much organic growth do you think you can get out of the business in the back half and what should it look like for the full year?

I think we're not following the camp, with everybody else and say that that there's not a lot of positive sides that things are going to just get real robust in the second half of the year. That said, I feel like a Canadian Prince are going to have growth from the second quarter. I feel like IPS is going to have growth from the second quarter. I think our Service Centers had some nice, supercenters were built in and should have some growth in the second quarter. So I still think we have very low inflation that haven't give us any price increases. I think GDP there sounds like its going to be low and therefore not really gigantic dynamic marketplace. So I would have to and say, I think going forward, we might be only talking about 3% organic growth. I think we're going to have some, and I think there is going to be, it's good if we make it, but there is no time given it to us.

So that 3% second half of the year, and obviously, it's just too early to tell, sort of, when you can get back to that 10% level. Obviously that's the goal, but you will have a little better economy that to help you there?

Right.

Our next question is from the line of Joe Mondillo from Sidoti & Company. Joe Mondillo - Sidoti & Company: I had a couple of questions on IPS. So first off, the margin excluding Natpro, it looks like you came in fairly consistent with the first quarter right around, sort of, 17-ish type percentage, which is still quiet a bit down from last year. So is this sort of the new normal and if so what's the dynamic behind that? Do you think there is any sort of upside or is it just because it's a tougher market, it's tougher pricing and demand and such, if you could just comment on that?

So first of all, we had, another loose side is that we had a couple of jobs that had unusually low margins. So they were just basically misquoted. And then I'm going to, the LACT units are deteriorating growth, but it's not quiet as profitable growth as our normal business, so that's having an effect. So I think that if David Vinson was here, he would say that he is going to have some improvement whether he gets back to where we want to, I would probably guess that he would say no. Joe Mondillo - Sidoti & Company: Is a large part of that just pricing?

The LACT units are, for whatever reason, of course maybe there is more competition or something, but I know that we just over make the 35% and 40% margin on those lines or more like 20% and 25%. Joe Mondillo - Sidoti & Company: So it's sort of a product mix issue?

A lot of the growth in IPS right now is coming from the LACT units, especially in the second quarter. Joe Mondillo - Sidoti & Company: Is that the midstream that you were referring to stream business?

What a LACT unit does is it goes on a production facility and it measures the amount of oil that's being gathered, and so that we can serve by getting to the right royalty payments and everybody gets paid correctly. Joe Mondillo - Sidoti & Company: And how much does sort of the midstream part of that business do, because I thought upstream is sort of biggest piece of the pie in that business.

This is falling into the gathering system and attack the wellhead. So I don't know the answer to whether we're in that fall, whether that's really midstream or upstream because these units are right there in the oil field. Joe Mondillo - Sidoti & Company: So how much has that part of the business sort of been cracking as a percent of that total IPS business?

You know, you're right. A LACT unit is kind of right after the production facility and right for forward goes into a pipeline. And so the pipeline is definitely midstream and the production facility is upstream. So it's in no man's land I guess. But any way I thought that was why that you asked that question. I would guess that we'll probably call in midstream though. Joe Mondillo - Sidoti & Company: I guess, bigger picture, I'm just trying to get a sense of what these different types of part to the supply chain or parts to the energy industry is really driving a business. Is that part of the business sort of a-third of the business, and then right at the well sort of those water-type pumps that you're selling, water extraction types pumps that you're selling, the water extraction types pumps, was that another third, and then everything else a third. I am just trying to get a sense of the drivers quantitatively what is driving the overall IPS business just numbers-wise.

Well, first of all, we're not selling any pumps that go on the drilling rig. And we don't sell frac pumps, we might be selling some small pumps that really go on frac truck, but it's not the big pumps and et cetera. So most of that is always going to be production related. So the midstream, upstream deal is that oil fields production or is it high plant gathering, shipping to a chemical plant. And so typically I would say that what the cycle is, is that we've been drilling less holes, because the oil and gas companies have really gotten more productive on how they do that. Now, those holes are producing more and so it's that production that we play in, and they're behind down the infrastructure of gathering that oil from the well to a facility, and then cleaning it up or whatever making it appropriate then to go into a pipeline or a train or some other way of carrying it, and taking it to market and selling it. Now, they're behind on those productions facility, so that's really we come out land-based, where it's a pumping system or a LACT unit or whatever. They're behind on those infrastructure or those production facilities. Joe Mondillo - Sidoti & Company: I was just going to say it's sounds like the next six to 12 months, because they're behind, it's sounds like the business is sort of flourishing, and you're going to still see very solid growth because to that?

That's exactly right and the fact that, whether they're drilling 2,000 wells or and have 2,000 drilling rig out there, are they're only poking in holes, 1,700 of them. They're still producing a lot of oil that need these production platform. So I guess drilling with down to from nothing, then eventually they wouldn't need any more production platforms. But as longs as they're drilling to some extent than they're going to need these things. And of course, there is, I'm not saying that there is not more need if there is 2,000 holes going in the ground versus 1,700, but the other part I would say, is that we're now starting to see a little uptick in that kind of drilling activity too is can't help but be good. Joe Mondillo - Sidoti & Company: And then, just as finally, just a follow-up on that whole picture, it seems like you're very sort of cautious in April. And it seems like you're a little more positive, has that just environment like we've just been talking about, just gone that much better since over the last three months?

There is two things going on, first of all, DXP did not hit on all cylinders last quarter, and I was trying to point that out. And some of this is one-time event stuff too and that is, Calgary didn't ask for the whole city to be put underwater, and they didn't ask for all of the rains and all of the deterioration ahead in roads and et cetera. So there are things happening there that we just know will get better, maybe the economy, maybe the activity is not any higher level than it was just, weeks and weeks that you couldn't do anything. And so now we're going to start back up. So we think there is some in our OEMs that overbuild equipment and haven't been buying stuff from us are now starting to ramp back up. So I guess, I'm going to have to say that I don't know that the general economy is getting a whole lot better. I just know there is things we're doing that were going to better. So that's part of it. And then I will just say that I think that they oil and gas company. That's a big segment for us, took to us, look there is more activity, there is more quoting. There is just a lot more activity then there was in the first half. And we see it sort of coming as it relates to oil and gas. Joe Mondillo - Sidoti & Company: I'll just ask one last question quickly, a housekeeping question. Mac, the corporate and amortization expenses that you breakout in the queue, do you happen to have those for the second quarter?

Not sure. So you want the corporate expense? Joe Mondillo - Sidoti & Company: And the amortization, if you have that.

The corporate expenses in the second quarter were $8,216,000 amortization was $3,145,000.

Our next question comes from the line of Holden Lewis with BB&T. Holden Lewis - BB&T: So if you didn't brought up, why was the corporate expense about $2 million lower in Q2 than it was in Q1 and Q2 last year?

I mean declines were lower. That's a big decline Q1 to Q2, if I wrote back, if I rollback those as well not compared to last year. Holden Lewis - BB&T: So payroll taxes mean that tier cost you talked about or Commissions? The commissions you've got as a segment?

In Q1 one of the sequential big increases in SG&A expense from Q4 was a big increase in payroll taxes, which we should always have in the first quarter and then it goes down as we go through the year.

We will follow-up offline. Holden Lewis - BB&T: And also the tax rate, which did sort of net down in Q1, it was down about 36% in Q2. Historically, you've been charted a 39%, 40% range. Is this a function of a single discreet event or do you have a tax strategy that allows us to believe that we're surely going to be sustaining this type of tax rate?

This is the tax rate for the year, this is what I expected to be in the third and fourth quarters also. Holden Lewis - BB&T: So you're saying it's true enough and so now we can sort of assume it's kind of into 37% range for the year?

Yes. Holden Lewis - BB&T: And again, is that what you're doing?

This is right for the six months. Holden Lewis - BB&T: And then again, is there something that you're doing to get tax rate lower, so we can carry this forward to 40% and 50% or this just sort of the discreet event specifically for this period?.

Part of it is for us in the end the tax for Western Canada is actually a little higher and Canada didn't make this much, I mean there are a lots of difference.

Canada is a little higher, U.S. I think it's higher than 66%, and Canada is higher even then did well.

The tax rate in Canada is lower than the U.S., but by the time you provide for taxes to bring that income into the U.S., you end up with higher rate. That is what I was kind of trying to say. Holden Lewis - BB&T: And then can you talk about the Canadian performance, have you framed or reset that was in Q2. It appears like it looks like the Canadian business was year-over-year, was that business down through much more than the overall business, you're going to frame that?

Well, it is on the year-over-year and we didn't known them last year. Holden Lewis - BB&T: And then just last one for you, the housekeeping, the days I think in Q2 were 53, do you know what they are in Q3 and Q4?

You're asking about how many days are in the rest of the year. Holden Lewis - BB&T: I mean how many days per quarter, right?

I don't know what it was. It is on the Q3 of 2013 and Q4 2013.

We have a follow-up question from the line of Joe Mondillo with Sidoti & Company. Joe Mondillo - Sidoti & Company: I just had a question regarding the service centers. The profitability, you're at running at 11.5% last year, in the second quarter here you are at 10.7%. So I was just wondering sort of what are the expectations on the back half of the year, regarding that part of the business?

I think that our Canadian friends did not perform in a way that brought that down a little bit, and we would see them do it better for the rest of the year. So we would see that go back up to that 11% type range. If you back out the effect of acquisitions, services centers operating income level was very consistent with the last year and actually just slightly up Q2. Joe Mondillo - Sidoti & Company: Around 12% than ex any cost related to acquisitions?

Yes. Joe Mondillo - Sidoti & Company: And then because of the Natpro acquisition, I'm just wondering what sort of type of margins in the back half you're looking at IPS. You mentioned that that could become a bigger portion in Natpro, could become a bigger portion of IPS down the road. Does that mean in the back half we should expect that, and if so, should we expect margin slightly trending a little lower or you also mentioned that there was a mix of lower margin stuff in the second quarter? So I'm just trying to get an idea from that sort of 15%-ish type level that we're in the second quarter, what we're looking at in the back half?

I think the worst case is that IPS' margins would not improve, but they may even go down. And I think David Vinson would feel that they're going to go back up. Joe Mondillo - Sidoti & Company: So may be like a flat-to-up?

Yes.

Ladies and gentlemen, this concludes the DXP Enterprises Incorporated 2013 second quarter results conference call. Thank you for your participation. You may now disconnect.