David R. Little - Chairman, President and CEO Mac McConnell - SVP of Finance, CFO and Secretary.

Matt Duncan - Stephens, Inc. Holden Lewis - BB&T Capital Markets.

Good day, everyone. Welcome to the DXP Enterprises, Inc. Second Quarter Conference Call. Today’s call is being recorded. At this time, I would like to turn the conference over to Mac McConnell, Senior Vice President of Finance. Please go ahead, sir..

Thank you. This is Max McConnell, CFO of DXP. 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 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 can differ materially. A detailed discussion of the many factors that we believe may have a material impact 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 second quarter 2014 results. David Little will share his thoughts regarding the quarter results. Then, we will be happy to answer questions. Sales for the second quarter increased 73.7 million or 23.9% to $381.6 million from the second quarter of 2013.

After excluding second quarter 2014 sales of 60.6 million for businesses acquired, sales for the second quarter increased 13 million or 4.2% on a same-store sales basis.

This sales increase is primarily the result of increases in our Service Center and Supply Chain Services segment, 8 million and 5.1 million, respectively, on a same-store sales basis. Sales of Innovative Pumping Solutions product increased 37.6 million or 71% to 90.6 million compared to 53 million for the 2013 second quarter.

After excluding 2014 IPS segment sales of 37.8 million for businesses acquired, IPS segment sales for the second quarter of 2014 remained flat from the prior corresponding period on a same-store sales basis.

Sales by our Service Center segment increased 30.9 million or 14.2% to 48.8 million compared to 217.9 million of sales for the second quarter of 2013.

After excluding 2014 Service Center segment sales of 22.9 million for businesses acquired, Service Center segment sales for the second quarter of 2014 increased 8 million or 3.7% from the second quarter of 2013 on a same-store sales basis.

This sales increase was primarily the result of increased sales of rotating equipment to oil and gas related customers. Sales for Supply Chain Services increased by 5.1 million or 13.8% to 42.2 million compared to 37.1 million for the 2013 second quarter.

This increase in sales is primarily related to increased sales to four existing customers in the gas turbine, oil and gas and truck manufacturing industries that amounted to approximately 2.9 million of this increase. The remainder of the increase was primarily the result of obtaining a new customer in the oil and gas industry.

When compared to the first quarter of 2014, sales for the second quarter of 2014 increased 33.1 million or 9.5%. After excluding second quarter 2014 sales of 6.7 million from our acquired business, sales for the second quarter increased 26.4 million or 7.6% on a same-store sales basis.

Second quarter sales for each of our three segments increased from the first quarter. Second quarter 2014 sales of Innovative Pumping Solutions product increased 10.7 million or 13.4% compared to the first quarter of 2014. This increase resulted from increased sales of pump packages to midstream oil and gas customers.

Second quarter 2014 sales by our Service Center segment increased 17.6 million or 7.6% compared to the first quarter of 2014. Excluding sales on a same-store sales basis of 6.7 million from our acquisition of Machinery, Tooling & Supply, Service Center segment sales increased 11 million or 4.7% from the first quarter of 2014.

This increase is primarily the result of a $9.4 million increase in sales of pumps to the energy industry. Second quarter 2014 sales for Supply Chain Services increased 4.8 million or 12.8% compared to the first quarter of 2014. Sales increased to a broad variety of existing customers.

The largest sales increases were to customers in the food and beverage, rubber, energy and truck manufacturing industries. Gross profit as a percentage of sales for the three months ended June 30, 2014 decreased by 62 basis points compared with the second quarter of 2013.

This decrease was primarily the result of businesses acquired in 2013 and 2014 having a lower gross profit percentage in the remainder of DXP. On a same-store sales basis, the gross profit percentage increased by 9 basis points from the prior corresponding period as a result of improved gross profit margin for the IPS segment.

Gross profit as a percentage of sales for the second quarter of 2014 slightly decreased to 21.9% from 29.2% for the first quarter of 2014. This decline is a result of the May 1, 2014 acquisition of Machine Tools. On a same-store sales basis, the gross profit percentage increased by 7 basis points in the first quarter of 2014.

Gross profit as a percentage of sales for the Supply Chain Services segment declined by 11 basis points, which is essentially flat. Gross profit as a percentage of sales in our IPS segment increased from 27.4% in the first quarter to 29.8%.

This increase in gross margin resulted from sales of higher margin pump packages to midstream oil and gas customers. On a same-store sales basis, the gross profit as a percentage of sales in our Service Center segment decreased 50 basis points in the second quarter compared to the first quarter.

This decline was primarily the result of declines in sales of higher margin safety services work related to work over rigs in the U.S. and well completions in Canada. SG&A for the second quarter of 2014 increased by 14.4 million or 21.1% from the second quarter of 2013 compared to the 23.9% sales increase.

This increase is primarily the result of 10.1 million of SG&A expenses associated with acquisitions completed during 2013 and 2014. Excluding expenses from business acquired on a same-store sales basis, SG&A increased by 4.3 million or 6.2%.

This increase is primarily related to 2.1 million or 84.4% increase in healthcare clients and 2.2 million or 3.2% increase in other SG&A expenses, which is consistent with the 4.2% increase in sales on a same-store sales basis.

As a percentage of sales, the second quarter 2014 expense decreased 50 basis points to 21.7% from 22.2% for the prior corresponding period primarily as the result of B27 having lower SG&A as a percent of sales than the rest of DXP. SG&A for the second quarter of 2014 increased 3.1 million or 3.9% from the first quarter of 2014.

Expenses of businesses acquired on a same-store sales basis accounted for 1.2 million of the increase. A 1.9 million increase in health claims accounted for the remainder of the increase. As a percentage of sales, SG&A decreased to 21.7% from 22.8% for the first quarter of 2014 as a result of sales increasing 9.5% and SG&A increasing only 3.9%.

Operating income for the second quarter of 2014 increased 5.1 million or 22.1% from the second quarter of 2013. This increase in operating income is primarily the result of the 23.9% increase in sales. Operating income for the Innovative Pumping Solutions segment increased 95.3% primarily as the result of the 71% increase in sales.

Excluding operating income from acquired businesses of 4.8 million, operating income increased 2.9 million on a same-store sales basis. This increase was primarily the result of a 442 basis point increase in gross margin.

The increased gross profit as a percentage of sales for the IPS segment on a same-store sales basis is the result of sales of higher margin pump packages to midstream oil and gas customers. Operating income for the Service Center segment increased 9%.

Excluding second quarter Service Center segment operating income from acquired businesses of 2.5 million, Service Center’s segment operating income for the second quarter in 2014 decreased to $400,000 or 1.8% primarily as a result of a 64 basis point decline in the gross profit percentage for the segment on a same-store sales basis.

The decline in gross profit as a percent of sales on a same-store sales basis is primarily the result of declines in sales of higher margin safety services work related to work over rigs in the U.S. and well completions in Canada.

Operating income for the SCS segment increased 13.3% primarily as a result of the 13.8% increase in sales within the segment. Operating income for the second quarter of 2014 increased by 6.2 million or 28.1% for the first quarter of 2014. B27 generated $3.8 million of this increase. Natpro's operating income improved by $900,000.

Interest expense for the second quarter of 2014 increased 88% from the second quarter of 2013 primarily due to increased borrowings to fund our January 2, 2014 acquisition of B27 and our May 1, 2014 acquisition of Machinery Tooling. The increasing borrowings for acquisitions also increased the interest rate on our borrowings.

Interest expense for the second quarter decreased $200,000 or 6.5% from 3.4 million in the first quarter of 2014 to 3.2 million.

This decrease is primarily the result of interest rates on our credit facility and the second quarter being approximately 25 basis points lower than during the first quarter, because the company’s actual leverage ratio is lower than the pro forma ratio used starting on January 2, 2014.

Total long-term debt increased to approximately 21.3 million to 491.8 million during the second quarter of 2014. This debt increase is partially the result of acquiring Machine Tools for 14.9 million, purchasing 100,000 shares of DXP stock for 6.8 million and a 22.6 million increase in accounts receivable.

The increase in accounts receivable is primarily the result of the terms of a large package, which is expected to be collected during the third quarter. At June 30, 2014, the amount available to be borrowed under our credit facility was approximately 63 million. Our bank leverage ratio was 3.1 to 1 at June 30, 2014, up from 2.9 to 1 at March 30, 2014.

At June 30, our borrowings under the credit facility were at an average interest rate of 2.15%. Our interest rates will increase 25 basis points in August 2014 as a result of the increase in leverage ratio. Capital expenditures were approximately $3 million for the quarter. Cash on the balance sheet at June 30, 2014 was 12.1 million.

Accounts receivable at June 30 were 281.9 million. And inventory at June 30 was 111.9 million. Now, I would like to turn the call over to David Little..

Thanks, Mac. Reviewing our second quarter results, we are pleased with the progress we have made since our first quarter and we still believe we have a lot of work ahead of us. We experienced 24% sales growth year-over-year and saw improvement in both Natpro and B27.

Overall, DXP grew organically 4% with the acquisitions adding 61 million for the quarter. EBITDA year-over-year grew 25% from the quarter with margins of 9.43%. And our after-tax return on invested capital was 28% for the quarter versus 31% from the same period in 2013.

With our progress, we continued to see areas we need to shore up including targeting the right sales growth opportunities, profit optimization, working capital management and continued improvement of our safety service division, Natpro and B27.

As it pertains to Natpro and B27, for the quarter Natpro had a $0.01 per share dilution versus $0.05 dilution in the first quarter while B27 was $0.09 per share accretive versus $0.06 per share diluted in the first quarter.

At Natpro we have begun to correct the engineering issues experienced in Q1, implemented some workforce reductions and have added some new management depth. Our IPS team from Houston continues to spend increasingly more time with our team at Natpro sharing best practices and beginning the early stages of leveraging engineering.

As we discussed on our last call, we believe this is at least a six-month process and we are seeing progress week-to-week and month-to-month and we look forward to continued improvements through the remainder of the year.

Additionally, while we are still in breakup season in Canada, as we go into the second half of the year, we are encouraged by the improving rig count and the overall tone of the market. As of June 30, 2014, Alberta rig count was up 35 rigs or 29% and Canada was up 30 rigs or 15% over the same period in 2013.

We believe should this trend continue that we should see good results not only from Natpro but also from our other Canadian businesses, which are more heavily tied to rig count such as HSC and Industrial Paramedic Services.

With regards to B27, we experienced sequential sales growth along with a 300 basis point improvement in gross profit margins and 680 basis point improvement in EBITDA margins. Orders for IFS have increased each month but are not at the levels we would like to see them at. They are working on some large orders that maybe placed this year.

The other parts of B27 are performing as expected. DXP’s safety services has grown on the product side of the business. The safety services side has declined because of a large account in our Canadian operations. Note that services have much larger gross margins.

The large account is being replaced with new customers and Canada is mostly seasonal and they see some improvement in the second half of the year with some slowness caused by capacity constraints of pipelines and rail carts. I would like to thank our Canadian associates for their efforts on improving on their operations.

You have made some nice progress and I personally look forward to your continued progress and future successes. Our working capital and cash flow needs a little work as accounts receivable increased 23 million in the quarter.

The good news is most of this increase is the result of the terms of a large pump package which is expected to be collected in the third quarter. Overall, I am pleased with our progress in the second quarter and our likely direction of our financial performance and where we are headed.

Our long-term goals and growth strategies are intact including future acquisitions. I would now like to summarize the activities of our three business segments; Service Centers, Supply Chain Services and Innovative Pumping Solutions.

From Q1 of 2014 to Q2 of 2014, the Service Center segment sales increased 7.62%, operating income increased from 24.4 million to 25.4 million or a 4.34% increase.

This sequential increase is primarily driven by an improvement in our pump sales offset by a decrease of 76 basis points of gross margin caused by decline in our safety services business, which has high margins.

We are expecting our oil and gas customers to have modest growth in the third quarter with upstream, midstream and downstream activities trending slightly up. Food and beverage will continue to run flat at present, while the general industrial market remains mixed.

Our quotation activity is trending up and we fully expect to grow by taking market share from distributors that lack the breadth of technical products, services and expertise needed in this highly competitive market. We’ll continue to focus on our sales channels development through commercial and technical training.

The human capital investments made in the second half of 2013 are beginning to show some positive results. We are also thrilled to announce that our Ohio River Valley management team successfully elevated our – Avilla, Indiana service center to a supercenter status.

We would like to recognize our employees, customers and suppliers in the Avilla market for their dedication and support in gaining our latest supercenter. We move into the second half of the year with a network of 38 supercenters and a goal to deliver two additional supercenters in the third quarter of this year.

In summary, we expect to complete and win during the second half of our fiscal year. Our customer driven strategy continues to create value for industrial customers seeking to consolidate their vendor base without sacrificing local inventory and expertise.

Our focus will remain on future strengthening of our North American Service Center platform through the creation of super regions and supercenters that will provide substantial businesses to industrial customers looking to improve their overall production and financial performance.

Supply Chain Services; in the second quarter of 2014, DXP’s Supply Chain Services saw an increase from 65 on-sites to 69 on-sites and from 98 off-sites to 99 off-sites facilities, which contributed an increase to both the top line and the bottom line versus the first quarter.

During Q1 and Q2, the SCS team completed four on-site locations and one off-site, which will increase revenues over the next two quarters. These industries comprised of oil and gas, mining, automotive and energy keeping a well-balanced customer mix in the Supply Chain segment.

Implementations started in Q1 and Q2 will result in three additional on-site locations coming on line by early Q3. There was modest growth in existing accounts as well as organic growth based on winning new deals.

SCS continues to use technology as a differentiator to gain market share and establish the business segment as experts in automating the supply channel.

The latest technology SCS has implemented uses a storeroom [e-pod] (ph) and remote point of use ordering device that allows customers to order storeroom or production supplies from a local kiosk, which returns travel time, increases productivity.

E-pod also allows SCS to further automate storerooms with electronic signature and real-time issuances and cycle counts. Management trainees are joining DXP at the rate of one new college grad a quarter with degrees in supply chain and in industrial distribution.

These grads are trained in DXP sales and operational excellence programs and provide a great resource for implementation in later on-site management and business development. The career path has proven to be rewarding to the employees, DXP and most importantly to our customers.

IPS segment; upstream oil and gas and mining sector, land based, quote activity, order rate and order hit rate in this sector continues to remain strong. We’d expect this profile to remain consistent through Q3. We expect very favorable order hit rates in Q3 as well.

Mining; most of the success continues in the copper mines and Southwest U.S., Central America, South America and Mexico. Quote activity and order rate remain consistent in Central South America and Mexico. We will see a pullback in U.S. copper mining projects and feel this pullback is due to copper prices.

Midstream and upstream; this sector continues to be one of our top performing sectors as it relates to quote activity, orders received and future order potential. The Eagle Ford, Permian, Bakken shale plays continue to provide the majority of our activity.

Marcellus and Niobrara continue to provide opportunities, however, not at the rate of the Eagle Ford, Permian and Bakken shale plays. The majority of the products being quoted and sold in the Bakken are associated with our LACT units. There has been a resurgence in activity in saltwater injection market.

We are supplying equipment for terminal loading and offloading facilities utilizing our centrifugal packages that are being fabricated in the 529 Houston and Golden, Colorado locations.

Our LACT units being produced in West Texas are being utilized in the Eagle Ford and the Permian shale plays, and a large component of the Eagle Ford and Permian shale play activity continues to be associated with our horizontal pumping equipment.

The horizontal pumping equipment is being utilized in the LACT unit process, pipeline, gathering station, booster stations and saltwater disposal applications. Our centrifugal pump continues to be utilized in the gathering system locations, truck loading, offloading systems as well as the booster systems for the HP Plus horizontal pump applications.

Our high engineered, multistage, remanufactured equipment and rerate business is very robust. This equipment is being utilized in midstream sector, gathering stations and booster station applications. This equipment is being used in crude oil and LNG applications.

Recently, we had a huge win with our plunger pump equipment with a major midstream customer. The equipment application was for a crude oil gathering station and pipeline service. This has resulted in 101 plunger pump packages being placed in service in the Permian and the Eagle Ford shale plays in the upcoming months.

We continue providing a delivery proposition for our horizontal pump, centrifugal pump equipment and our remanufactured high energy pump with lead times that allows us to outperform our competition when delivery is a major factor. We are very optimistic our U.S. midstream, upstream opportunities will remain strong through Q3.

Gulf of Mexico; this sector continues to remain soft. We are certainly active with upcoming new platform projects that will start issuing orders for equipment in Q3 and Q4. 2015 is showing signs of new platform projects that are presently on schedule to move forward. Canadian markets; municipal market in Eastern Canada still has not rebounded.

Oil and gas, this sector continues to be sluggish but the major players are slow to place orders. Quote activity and order potential remains strong. The key factor is associated with the Canadian oil is they have maximized the current infrastructure to export product due to current export pipeline and rail capacity.

Due to the seasonality and open quotes for buyable projects, we are optimistic Q3 should be consistent with Q2. Latin America and the Caribbean; oil and gas, we experienced an increase in order placement for modular equipment in this sector in Q2. However, our order rates are behind our expectations.

IFS is optimistic about the upcoming opportunities of modular equipment in Central America. We have been very successful in this region in the past. Mid East and Dubai; at present this sector is performing on plan with our API product line equipment and modular packaging opportunities have developed as we expected thus far.

We remain focused on the region and all opportunities. Our quote activity is consistent. The current state of rest in the region is definitely having a negative effect on the project opportunities moving forward. We are optimistic Q3 will remain robust with our products and service supporting major U.S.

oil and gas shale plays in the upstream and midstream markets along with Central South America, Mexico mining markets. We are confident the Central American oil and gas markets will provide great opportunities in the upcoming months.

When the Gulf of Mexico opportunities arrive, we are poised and ready to respond quickly to support our customers that operate in this market. We have solid relationships and history with companies that should weigh in our favor for equipment for the current and upcoming project opportunities.

In summary, I would like to congratulate the Supply Chain solutions group for their 13.83% organic growth and what appears to be a very good year for them. IPS segment continues to have a great year and we anticipate their efforts to improve Natpro and IFS. Congratulations to our Service Center group for their new supercenter.

All of the divisions have grown and a special thanks to the growth and increased margins from our rotating equipment division. We still have some areas to improve on and thanks to everyone’s efforts to making DXP the best it can be. We’re now open for questions..

Thank you. (Operator Instructions). We’ll take our first question from Matt Duncan with Stephens. Please go ahead..

Good afternoon, guys..

Hi, Matt..

Hi, Matt..

So things sound a little better this quarter than last. It looks like you guys are seeing the energy side at least pick up quite nicely for you.

Would that be fair to say?.

Sure. I think that’s fair to say. I think we’ve done a lot of work operationally and things are improving and headed in the right direction..

So just a few detail questions here. On B27, that was a pretty significant increase in revenues sequentially there.

What drove that? And as we look at how to forecast that business, should we think that it's going to continue to put up revenues similar to what you had this quarter or was there something in this quarter that may not repeat?.

No, we feel like they had a lull in the first quarter and then the second quarter they certainly had a nice increase like you said. A lot of it though was also an increase in their gross profit margins which resulted in much higher EBITDA margins which was nice.

And then I think just far as projections are concerned we – even if we get some significant orders that we’re working on this year, most of that is going to affect 2015 so we think that they’re going to be pretty flat for the rest of this year..

So flat around that 43 million number?.

Yes..

Okay. And it's now $0.03 profitable for the year. I think it lost $0.06 in the first quarter, but it was $0.09 accretive in the second quarter.

Are you expecting the margins in that business to be pretty similar through the balance of the year as well as what it was in the 2Q?.

Yes..

Okay.

So we're now thinking that business is going to be profitable for you this year if I call it $0.20, give or take?.

Yes..

Okay, good.

In terms of the Service Center uptick in organic growth, is it fair to say just kind of going back to the energy side of things that it's really energy that's driving that and industrial, food and beverage are the things that you said are still pretty flattish, David?.

We did see mixed results in the manufacturing sector and oftentimes I thought this was interesting. The other day I was talking to our new acquisition in Chicago and they were talking about how manufacturing was really kind of picking up there and I was like, wow, I mean like automotive? What? And they said, no, oil and gas. And I went, oh, okay.

What do you mean oil and gas? Oh, yes, we have cutting tools [throughout] (ph) manufacturers and their products are all sold in oil and gas. So, I think there is – when you look at manufacturing, I guess it depends on what markets you’re looking at and so those – there’s some bright spots there.

But certainly the biggest growth market we have is oil and gas..

The fact that when Supply Chain had really good sequential good Q2 to Q1 and I was expecting it all to be a new customer and it turned out no, the sales growth was all from just a variety of existing customers which to me points to GDP..

Yes, that sort of was going to be my next question, Mac. I mean that segment tends to be a decent leading indicator because in that business you've got a 100% of a plant's MRO spend.

So if you're seeing that kind of sequential improvement there, is there anything specific to the customers that you saw that uptick in, maybe something they're doing or do you guys think maybe that's an indication that there's some improvement coming on the manufacturing side?.

Interesting enough. I mean it was a variety, so that 4.8 million increase was spread among a bunch of customers and the biggest one was food and beverage. But it was across the board. We also – Halliburton – we think the oil and gas has shown signs that that might be picking up..

Okay. Last thing and I'll hop back in queue. David, the organic growth number at IPS if I'm going to nitpick being a little bit flat this quarter I'm sure is a little different than maybe what you had expected.

What do you think caused that to flatten out? Is it just a function of you had a really good 2Q last year than you were up against a tough comp? Was it timing of package completions? What's your thought on what the growth ought to look like in that segment? Why did it flatten out here?.

Yes, I don’t think it’s – you’re right. It’s sales were flat but we’re not expecting it to flatten out. We’re expecting to finish the year strong..

Okay. So it's probably timing up against the tough comp. There's really nothing to read into that. And I know that the nature of that business is – it can be pretty lumpy anyway, but it sounds like the quote activity, all that stuff is still very positive for you. That's the main thing..

Right..

Okay, thanks. I'll hop back in queue. Thanks guys..

(Operator Instructions). We’ll take the next question from Holden Lewis with BB&T. Please go ahead..

Great. Thank you. Good afternoon. The big delta against my model is that 17.4 IPS margin which obviously was significantly improved over a point I think we've seen for probably six, seven quarters.

As you've indicated you think that it's sustainable but can you give some color as to why it leapt so much from Q1? Is that sort of the organic business, the acquired business? Is it just mix? How are we thinking about the big jump in that metric?.

I mean it is clearly mix. Each order is a custom-made package. We’re dealing with the competition. We’re dealing – when did we bid it in the process? Some packages were quoted a long time ago, some more recently and so they each vary.

I mean the answer that I got was that the midstream business is really strong and that’s where most of the business is and it was better..

Okay..

Holden, I wouldn’t read too much into thinking that our – going forward that our GP margins are going to be that high every quarter. I think we have to take a – when we look at gross profit, we look at operating margins.

We kind of need to take an average for the year kind of approach, because – we’ll take the job at 20% if we think that’s what we have to do to get it but the next one and it will be the same kind of equipment, we can get it at 40%. So you just kind of have to average that..

Right. Well, I guess that's what I was going to ask is I mean did you know – because it is obviously a bit of a percentage completion type of business and that sort of thing.

But I mean did you know coming out of Q1 into Q2 that this was the margin that you would get, just because it is a backlog for percentage completion business? How much visibility do you have into the Q3 and the back half margin?.

We don’t look at that but we could. I mean, you’re absolutely correct. You could sit there and say, okay, David, listen, we have these 10 jobs we’re working on. What is the margin that we expect to make on those? And he could tell us and then therefore we could calculate all that out and come up with an answer for you.

But I’ll just tell you we don’t want to do that..

Okay, but the way you would suggest we approach this is not to run the 17.5 out for the rest of the year, but maybe to sort of think about 15-ish type number for the rest of the year just to kind of averaging Q1 and Q2.

Is that the thought or is there some reason…?.

That’s my [fault] (ph)..

You can kind of figure this out if you look at it. The operating income percentage for IPS when you back out the acquired businesses was 20% for two quarters in a row and we’ve achieved 20% before. So that’s a really good margin for that business. It’s also not one that we haven’t achieved before when we’re busy.

I mean there are a lot of fixed costs that go into cost of sales..

Right..

In fact they could be running more shifts, so in theory they could do better. I’m not trying to say they are but part of it is that they’re very busy right now and they’ve moved into a time period where the jobs are selling.

We’re quoted more recently in a busier time and so they’re back to – really I think they’re back to where they’ve been sort of before, but that’s not to say next quarter it could be down as a margin percentage because everybody’s (indiscernible) is unique..

Right.

The core IPS, that was at about 20% in both Q1 and Q2?.

Yes. Back in that acquisition the operating income was 20% in both quarters. We’ve done that before and it has been down. So I’m trying to say this is good but it’s not unusual..

So if the core IPS was consistent from Q1 to Q2, but you had a big leap from Q1 to Q2 overall, which business did you see that leap occur in? Was it B27?.

Not B27 and Natpro, even though Natpro was still diluted it had a nice increase. It improved to having positive operating income. I mean it’s operating income grew by $900,000 between the quarters and B27 generated 3.8 million more of its operating income..

Okay, fair enough. And then also sticking with the margin theme, in the MRO segment, obviously at 10.6 when it was low. Was it kicked down a little bit more again in MRO, kind of what's going on there? It feels like it should be a better margin business than that.

Can you give us some insights into sort of trend, whether you think that margin has bottomed? How are you thinking about that?.

Well, I think not all of it but most of it relates to safety services not products. The safety services has the potential having 40% gross margins. So we lost a significant account. Canada’s just gone through kind of the falling out, breakup for their deals. So margins were down in my opinion because of those two events.

Now, we’ve replaced a lot of the large account we’ve lost and sales are trending back up to them and then the Canada piece is coming out of their slow season. So I would hope and expect margin going forward..

It’s a higher margin business and the higher margin business declined in sales and in percentage. So it had sort of a big impact on the gross profit percentage..

Again because of fixed overhead. Even in cost of goods sold we’re renting people and we’re renting equipment. And if we’re not 100% utilized then margins will be negatively affected. But most of the MRO business is running stable. It still goes to safety services, it still goes to margin is kind of the thought..

Right. All right. Thank you..

We’ll take a follow-up question from Matt Duncan..

Hi, guys.

So Mac, do you have the month-to-month sales trend through the quarter? Did you guys see the sales momentum kind of build as the quarter went on? And how does July look?.

We did see the trends. The sales per day in April were 5.6 million, 6 million in May, 6.552 million in June..

Okay. And then how does July look? I know that the last day of the month, which is today, could swing that pretty significantly.

But just in terms of general tone of business if things continue to look like they're picking up a little bit?.

Yes, I believe that and we see that in our short window of backlog which is kind of increasing..

Okay, good. And then last thing for me, David, last call, it sounded like you might step back from M&A for a little bit here to just sort of make sure you had all your recently done acquisitions sort of fixed, if you will. It sounds like you're feeling a lot better about Natpro after you've made some changes there. B27 bounced back pretty nicely.

How are you feeling about M&A right now? What's the pipeline look like and sort of what's your appetite there?.

The pipeline never went away and so we’re back after acquisitions again..

Would you expect to get something closed before the end of the year?.

Probably..

Okay. All right, thanks guys..

Thank you. With no questions remaining, that does conclude today’s conference. We thank you all for your participation..