Ladies and gentlemen, thank you for standing by and welcome to DXP Enterprises, Inc. fourth quarter 2020 earnings call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the conference over to Mr. Kent Yee, Chief Financial Officer. Please go ahead.

Thank you Michelle. This is Kent Yee and welcome to DXP's Q4 2020 conference call to discuss our results for the fourth quarter and fiscal year ending December 31, 2020. 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. However, 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 now available on our website at ir.dxpe.com. I will now turn the call over to David to provide his thoughts and a summary of our fiscal 2020 and fourth quarter results.

Good morning. And thank you, Kent. And thanks to everyone joining us today on our 2020 fourth quarter and year-end conference call. I will begin today with some perspective on the fourth quarter and year-end results, current industry conditions and our position going forward. Kent will then take you through the key financial details after my remarks. After his prepared comments, we will open for Q&A. As we all know, everyone navigated through the many challenges of 2020 and I am proud and encouraged by the compassion and commitment demonstrated by our DXPeople throughout the year. As I outlined in the third quarter, there are some areas where the impact and progress is not where we would like it to be, but given the unprecedented nature of COVID-19 and the continued effects of managing a virus pandemic, I am proud of how we collectively found ways to move forward and how we finished the year. DXP started fiscal 2021 believing we were going to have a reasonable organic growth improvements, consistency in gross margins, complemented by a robust pipeline of acquisitions. We delivered on the majority of these goals in 2020 despite the global pandemic and associated upheaval. While we saw signs of slowing in our project business going fiscal year 2020, we felt optimistic and encouraged by the projects we saw coming. Unfortunately, as we all know, we then began to take on a new language and understanding around the global pandemic called COVID-19 and the essential nature of our business. This designation provided a renewed perspective for many of us and here at DXP, it really underscored the fact that DXP, we are the feet, legs and arms that keep the wheels of the industry and society in motion. DXP, its mission, products and services and what we…

Thank you David. And thank you to everyone for joining us for our review of our fourth quarter and fiscal 2020 financial results. Q4 financial performance reflects sequential sales increase as we move past the trough impacts of COVID-19 in the third quarter. Innovative pumping solutions and supply chain services grew sequentially, which is positive given both segments have been impacted the most by the negative impacts from the pandemic. Service centers had a slight sequential decline but given the end market diversity within this segment, we feel fine as it pertains to the outlook. That said, DXP finished the year in a strong position, closing four acquisitions, successfully refinancing our term loan B and continuing to drive free cash flow generation with $15.3 million in Q4. Overall, DXP's fiscal 2020 results were good to see and reflect the following, strong acquisition activity completing six acquisitions in 2020, sales demand bottoming from the pressures of COVID-19 during Q3, business segment strength within service centers, followed by supply chain services and then IPS, gross margin improvement year-over-year, SG&A reductions with a focus on sizing to business activity and strong quarterly and yearly free cash flow generation. Similar to the third quarter, in the fourth quarter, we took $11.5 million pretax charge related to a write-down associated with assets impacted by COVID-19. For the full year, this amounts to $59.9 million in pretax charges related to the impairment of goodwill and related assets associated with the pandemic. Additionally, we incurred $5.4 million in charges in the fourth quarter associated with the refinancing of the term loan B. Throughout the remainder in my comments, I will adjust for these items as they are non-cash or unique and one-time and relate to following the appropriate accounting guidance but adjusting provides a more complete view…

[Operator Instructions]. Your first question comes from Tommy Moll from Stephens. Your line is open.

Good morning and thanks for taking my questions.

Thank you. How's it going, Tommy?

Going good. Hope things are good for you all.

Good.

I wanted to start on your oil and gas end market. Clearly, last year, there were some headwinds there and now we look up in early 2021 and WTI sitting in the mid-60s. What kind of anecdotes can you share with us about the potential pace of a reacceleration there, if any? This might be one of those points in time where the commodity and the level of activity are dislocated but to the extent you can help us here forward, that would be helpful. Thank you.

So, Tommy, I think you answered your own question. But I think they are a little disconnected things. There is no question that oil and gas has kind of bottomed out and then there is the budgets, the capital budgets that the oil gas companies put forward this year are cut back. So we are not seeing a big V shape recovery, I guess is what I would say. That said, we were encouraged by the fact that things are progressing and moving forward, just not out-of-control forward. And you are getting better. And so that market will start improving and hopefully for sure will gain more momentum as the COVID vaccines take effect and we get into the second half of the year. But I think you said it best actually is that the price of oil has shot up pretty nicely. It's a very attractive price. And yet activity has been slower to recover.

Thank you. Thank you both there. And David maybe sticking with the end market theme. Going forward, it sounds like diversification through M&A continues to be a priority. I am curious, do you have a view on, say, one, two, three, pick your timeframe, some time in the future after you have digested a few more deals on what type of oil and gas versus industrial end markets split is a comfortable ZIP code to end up in? Or is it more just take the deals that are in front of you and we will think about the rest later?

No. We are trying really hard to sell as many pumps as we can into the oil and gas industry, but at the same time, we would like that exposure to get down to about 20%. I don't think it ever gets really lower than that. We are not like AIT which they mentioned 5% or some. But we are in that business. And we are in that business from a technical point, pump point of view, rotating equipment point of view, both mostly in the midstream area. Again, we are not in the upstream or not in the drilling aspect of it, et cetera. So drilling rig count doesn't really matter to us a whole lot. But it ultimately does because if they are not drilling new wells or replacing oil and gas then they don't need new equipment. But we are in the midstream part and that part is, like I said, is improving. And so I think as long as, we were founded as a pump company, we were founded in Houston, Texas. So if we ever got that, we are going to be an awful big company when we get oil and gas down to 20%.

I will look forward to following the progress there.

Yes. I do think it's smart and it will create some less volatility of our company which I think is important is, you know, as we move into water and wastewater, which is, that's just going to be there, food and beverage that's going to be there. Those are much, much more stable markets. I am not as concerned, by the way. I don't think we have to turn green tomorrow. I don't think we are going to live without oil and gas for a long, long time. So I welcome the opportunity to work on wind turbines. And I not quite sure how we play with solar panels. But wind turbines and the gearboxes and all the stuff, the turbines and stuff that are in there, we certainly can play in that area. Biofuels, we can play in that area. So I think we are being responsible but I think we are been realistic too.

Last question for me and then I will step back. Just focusing on, let's say, year-to-date or maybe first quarter trends, you have got a couple months in the book. What are some topline items you could highlight for us, maybe just a trajectory in terms of average daily sales if you know it or any context you can give there? And then on the costs of margin side, anything you want to make sure we are aware of just from the fourth quarter to first quarter progression there?

Yes. Tommy, this is Kent. I will just walk through the sales per business day trends. And we have early indication of February. But technically, things could still be slightly moving. But just in terms of sales per business day, in October it was $3.9 million, in November $3.89 million, in December $3.45 million and then in January $3.82 million and then in February $3.81 million. And so those are the sales per business day trends. And so keep in mind, March is typically a big month for us. So that's what we are looking towards as we kind of go into ending out Q1 is that this month hopefully is a significant uptick as we normally see in March. In terms of your other question regarding cost, if you will. Q1 is always a disproportionately higher SG&A quarter, just because you have insurance, you have payroll taxes, you have some things. And so from an SG&A standpoint, while we have been kind, for lack of better word, sizing to the level of business activity throughout the business, you typically have a higher SG&A quarter in Q1. And so we would continue to expect to see back here at the beginning of the year. And so hopefully that answers your question. That said, we are obviously encouraged, by the way, from our gross margin trends throughout 2020. And if those continue to hold and move through in 2021, we will still see success of improvements on the bottomline. In addition and this will be my last comment is, obviously we will start to see the Q1 performance of all the acquisitions we closed at year-end and all those acquisitions were great performing businesses even in a pandemic year. And so their profitability will start to contribute in Q1 and so we look forward to that as well.

Great. That's all helpful. Thank you both and I will turn it back.

[Operator Instructions]. This will bring us to the end of our Q&A session today. Thank you everyone for joining us. This is the end of the conference call for today. You may now disconnect.