Good day and welcome to the DXP Enterprises Fourth Quarter and Year-End Conference Call. Today’s conference is being recorded. At this time I would like to turn the conference over to Mr. Mac McConnell, Senior Vice President of Finance and Chief Financial Officer. Please go ahead.

Thank you. This is Mac McConnell, CFO of DXP. Good morning and thank you for joining us. Welcome to DXP’s fourth 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 fourth quarter 2016 results. David Little will share his thoughts regarding the quarter’s results and then we will be happy to answer questions. Sales for the fourth quarter of 2016 decreased 20.2% to $222.3 million from $278.7 million for the fourth quarter of 2015. After excluding fourth quarter 2015 sales of $7.1 million for Vertex, which was sold on October 01, 2016, sales for the fourth quarter decreased $49.2 million or 18.1% on a same-store sales basis. This decrease was primarily the result of declines in sales to customers engaged in the upstream and midstream oil and gas industry or manufacturing equipment for the oil and gas industry. Sales by our Service Center segment in the fourth quarter of 2016 decreased $47.7 million or 25.5% to $139.7 million compared to $187.4 million of sales for the fourth quarter of 2015. After excluding 2015 Service Center segment sales of $7.1 million for Vertex, Service Center segment sales for the fourth quarter of 2016 decreased $40.6 million or 22.5% from the fourth quarter of 2015 on a same-store sales basis. This sales decrease is primarily the result…

Thanks Mac, and thanks to everyone on our conference call today. Let me begin this discussion by thanking all of our DXPeople for maintaining a collective focus and resiliency as we continue to work through the protracted downturn in oil and gas and our industrial markets. During this time last year we did not anticipate a further retraction in the market at the levels we experienced in fiscal year 2016. As such, for the past two years we have operated in the midst of a prolonged oil and gas and industrial recession. DXP has executed well during this time and performed ahead of the market relative to other oil and gas distributors and competitors with like end market exposure. DXP has stayed focused on providing our existing customers with excellent service as well as well as creating new customer relations and opportunities. We have also worked hard with our suppliers to bring purchase costs down and stabilize our gross margins despite the challenging pricing environment. Overall from 2015 to 2016 DXP's gross profit margins only declined 71 basis points. We will discuss later on, but this has been a significant win as we have worked hard against the downturn. We leaned out DXP with a heavy focus on productivity and profitability throughout the organization. DXP's performance in fiscal 2015 and 2016 is a testament to the hard work of all our DXP people and teams. We have been leaner, sharper, and nimble to provide laser focus on being customer driven. Our sales objectives remain the same within our Service Centers and IPS business segments. Continue to cross sell multiple product divisions and capabilities, increased geographic region industry presence, capture additional fabrication work from capital projects, target downstream safety service turnaround opportunities and continue to aggressively sell to existing and hot…

[Operator Instructions] And we will take the first question from Matt Duncan with Stephens.

Hi good morning guys. Nice quarter.

Good morning, Matt.

Good morning, Matt.

So first thing I've got is just trying to dig in a little bit here on business trends, how does the business trend through the fourth quarter and here into the first quarter may be on a monthly sales basis? And David as you guys talk to customers sort of how are you feeling about that trend line going forward?

Was there two parts of that question, one is how it trended through 2016 and then how do our customers feel about going forward?

Well just the monthly sales through the quarter and then I guess...

Oh for this quarter. [Multiple Speakers]

In the January and February and then also sort of how you're feeling about the trend line going forward after what we've already seen in the past?

The sales per day for October were 3,481,000 per day in October, 3,626,000 in November and 3,855,000 in December. Then January 2017 dropped down to 3,395,000 per day and February picked up to 3,828,000 per day.

Okay. And then obviously you guys haven't closed March yet and the last day can be a very important day to how the quarter – how the month closes out, but just looking at how activity levels have been through the month, would you expect it assuming you get kind of a normal close out day, is March looking like it's probably up from February?

It certainly is from a dollar perspective from per days or lot of days in March and 23 to be exact. So I'm thinking that might be more like flat with February.

Okay.

We started out – we started - it was interesting, we started March out with a big bang and it looked like things were really kind of rocking along and then really the last couple of weeks have been a little softer really.

What do you think is causing that David? Is it this drop in oil prices?

I need to thank our sales fellows and stock market, but it all seemed to be relating to that impression, I guess. But no, I haven’t dug in deep enough to know the real answer to that because it could have been, it could be capital projects that just didn't close in March and are going to happen in April and things like that. So I think the general, a general trend in our thinking is that things are improving, backlogs are improving slightly. Sales continue to look like they're improving slightly and so wish I could go back to our brand at 10% days, but it doesn't -- at this point, it doesn't look like it's that strong and part of that again is we're going to – we're going to trail, we're going to trail the rig count.

Right.

So, I think there are things and projects, we feel really good about coating activity, we feel really good about, we feel good about the year, we do.

Okay, David on IPS, when you look at the backlog trend there, order intake, and just order increase, how does it feel like that business is trending going forward?

It's trending up slightly.

Okay. So on a quarterly basis, up slightly from what you just reported is the way to think about that then?

Right.

Okay. All right and then next up on the debt situation, Mac can you talk about, it sounds like from your commentary that you may have a new debt structure in place. I think the press release said in the near future, how soon do you hope to have that done?

Well, I'm going to answer that question, it's -- we are looking at two or three different options and some are cheaper and don’t give us as much flexibility and some are little more expensive to give us flexibility and we are trying to – we are trying to stab, all of them look better, if we can establish an uptrend. So if we can get March trending up and December I mean the fourth quarter was pretty flat with the third quarter which was good and then the first quarter trending up and it looks like the world is going to trend up, well then then things get a little cheaper and so we are not – we're working on it and I think we could probably pull the trigger when we want to or want to be as smart as we can.

Okay. And the last thing and I'll hop back in queue, just on SG&A expenses Mac, if I heard you correctly, it sounds like there is maybe $3 million of benefit in the quarter give or take, that probably doesn't carry forward, so you reported $53 million SG&A cost this quarter. Is baseline of $56 million kind of a better place for us to be thinking than obviously trends up with revenue growth?

I think so, I mean the health claims were down, and for several years our health claims have been running really high just because they are down one quarter doesn't mean they're going to stay down.

Okay.

So, they might come right back to where they were before and then the bad debt expense, we were just more aggressive at accruing during 2016 because I mean all the headlines of bankruptcies of energy companies and the result was we didn't need as much as we accrued, so that, yes that was kind of a one-time adjustment.

Okay. All right, fair enough. I will hop back in queue, thanks guys.

Thanks Matt.

[Operator Instructions] We will go to Joe Mondillo with Sidoti and Company.

Hi guys, good morning.

Good morning, Joe.

The backlog at IPS, I imagine that's still down year-over-year?

Yes 2016, 12/31/2016 was getting - was down from 2015 even though it has been -- it's kind of been climbing ever since around October.

Okay. So, it is starting to, you maybe it has bottomed and then it is starting to sequentially increase? Okay.

Right, yes.

Okay. In terms of the margin IPS, David do you I believe after that second quarter which was a strong quarter and you knew that wasn't probably sustainable in the near term, but in that conference call on the second quarter, I believe you stated that you thought that margins probably can still hold in at 8% maybe not hit the 10% that we saw in the second quarter, but can hold in at the 8% sort of level. We have not seen that, we've seen 4% and 5% in the third and fourth quarters. Just wondering sort of an update and your sort of thoughts and thinking on sort of margin IPS going forward here?

So the reason we didn't hit the percentage I thought we would is because we have been under pretty extreme pressure on the API side of our business which is really manufacturing and not really so much the fabrication side of our business. I think the fabrication side held up pretty nicely and but the manufacturing of API pumps is as you can imagine with the mid-stream market has gotten really competitive with people trying to keep their shops busy and things like that. So, the margins on that piece of the business only almost only on some pressure on every job, but has taken our margins down.

So how has the API business been sort of trending, do you anticipate that ends up being a tailwind at some point in time in 2017 and do you think we can get into the sort of higher single digits in terms of margins relative to that?

I think that businesses we're kind of climbing out of a low activity and the activity is picking up and when it picks up we will, it is not quite a seller's market, it’s still buyer's market, but so, that that's going to be under pressure probably throughout this year. And then, so I would think that we did a pretty good job overall were IPSs margins were only down 1% and I think that’s an appropriate mix of what we're selling and so I think I would just stay with the consisted number.

Okay and on the Service Center part of the business revenue of 25% in the fourth quarter here and yet your margins were flat year-over-year. First, number one, how are you able to sustain the margin? I'm assuming it’s maybe a mix pricing, maybe servicing is coming back? And number two, do you think that you can get more margin in the near term out of that part of the business?

And I'm sorry, but when you said margins were flat were you talking about Supply Chain Services or are you talking about the Service Centers?

No, the Service Centers.

Yes, they were actually down 1% also just to clarify that one point, but we feel, we've all been under pressure and I assume as orders start flowing in and people start doing better, then we’ll all do a little better in gross margins as cost of goods sold is the biggest expense we have. So, again I'm not quite sure we’re out of the competitive nature of our business. So, I think I would leave margins again for them being around what they did this year. I think there were some upsides of that, but I wouldn’t count on it.

And it appears we have no further questions at this time.

Thank you.

And we do have another question Joe Mondillo once again.

Sorry about that, I don’t know what happened with my phone, can you hear me right?

Yes, we can hear you now, you disappeared, but okay, we got you.

Sorry, I don’t know what happened there, but I did have one or two other questions. I just was wondering if you could update us on your strategy and venture with the pump side of the business trying to establish your own manufacturing capabilities to replace your – the goods business if you could update us on how that’s going and trying to take share and that whole process?

Yes, so that's fun stuff. We're - we had a very successful year on the on what we call our PumpWorks Industrial line of products. That's different than our PumpWorks 16 which is our API stuff. So, our API which is big large jobs that business you know became soft and then the midstream people were not building as many pipelines and stuff like that. So that piece of it is what I was referring to earlier as being down and under a lot of pressure. The PumpWorks Industrial side is sold onsies, twosies, it is not always a big capital project. We sell [indiscernible] we sell [indiscernible]. We sell our pump works product and into that particular market it's not quite as sensitive because of the orders aren’t big and so our margins are okay in that side. And the volume of business is down, but it's but it's just down because there's a lot of customers doing less work. That particular part of the business is really up for us as it relates to pump works, so PumpWorks Industrial as it's taking market share every time it sells a pump and we've replaced most of what DXP used to do with Goulds and we feel really, really good about that and we're going after the Goulds direct accounts and to do that we've got to get on the manufactures authorized list which we have many, many, many success stories in doing so and so, we feel very, very good about that. We also feel good about setting up some other distributors on that product lines to start reaching more geographies and gaining more presence and quicker than us trying to open up our own store which we're not very good at. And then hopefully some of those distributors we set up and open up that they'll actually become acquisition targets in the future. And so, we think that's a really strong plan to increase our business with the PumpWorks Industrial and it is working and we have done what I'm talking about it's not just some idea, we're executing that. And we feel really feel really, really good about our growth in PumpWorks.

And how significant do you think that'll be to the gross margins given now that you are manufacturing some of these pumps that you used to pick up from Goulds?

Right, so it's – as I will be as transparent as I can, if it's us manufacturing it and DXP selling it to one of their existing customers our margins are much higher, they are higher, they're great. And but if our margins are against the Goulds direct account or Goulds is selling direct and that we're selling direct and so our margins will be lower in that particular instance, but they're still very acceptable margins. If we sell through another distributor well now we're cutting the pie in two and so our margins get a little, they get lower in that environment. So, the more we sell direct to just a typical oil and gas customer that we used to sell, we have a lot of room to play with margins and we are doing really, really good at that. And we are doing really good against some of Goulds direct accounts. We tend to, my operational statement is, we think speed kills and what we mean by that is that we just can deliver faster, we can be there faster, we will do warranty faster, we will do services faster, we will do everything and so speed kills competition and so we feel good about that. So I want a very clear answer on margin improvement because some of us will be increased and other parts of it will be just kind of normal.

And I understand it's a tough question actually and so I appreciate that, but and two last questions just on in terms of the Vertex business that I believe you spun off or divested at the beginning of the fourth quarter, so you saw almost the fourth quarter without that business. Just wondering the seasonality of that business, did the fourth quarter tend to be seasonally a weak quarter for that business or was there any seasonality in it at all?

They were master distributors selling to other distributors and I guess that the other distributors wanted to reduce their inventories towards the end of the year. The fourth quarter might have been a little seasonal, but I don’t remember it being very seasonal.

Yes, I don’t remember it being seasonal. If you look at, I'm looking at the 2015 history and it would appear that it was seasonal because it started off with a level of $9.3 million or $9.5 million of sales in the first two quarters and then dropped to 8 to 7, but I don't think that was seasonality, I think that was what was going on in the fourth quarter of 2015.

Great, okay. Lastly, I don’t know if you mentioned this, but the – in terms of the timing of the debt restructuring is there any timing that you are sort of thinking about?

I think we would like to we are a little scared of everybody, so we're not, we are going to – we are trying to do some sooner than later, but I'd still think that, I don’t think it is sometime in the summer.

Okay. That is all from me. I appreciate it, thanks a lot.

Great, thanks.

And we have no further questions at this time.

Perfect. Thanks everybody for joining us. We had a good quarter and we look forward to having a great year. Thanks.