David Little - CEO Mac McConnell - SVP & CFO.

Matt Duncan - Stephens Incorporated Ryan Merkel - William Blair Joe Mondillo - Sidoti & Company.

Good afternoon and welcome to the DXP Enterprises First Quarter Call. Today’s presentation is being recorded. I would now like to turn the conference over to Mac McConnell, Senior Vice President of Finance..

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 can 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 2015 results. David Little will share his thoughts regarding the quarter, then we will be happy to answer questions.

Sales for the first quarter of 2015 decreased 2% to $341.6 million from $348.5 million for the first quarter of 2014 after excluding first quarter 2015 sales of $11.3 million for MT&S the businesses acquired on May 1, 2014. Sales for the first quarter decreased $18.3 million or 5.2% on a same-store sales basis.

This decrease was primarily the result of declines in sales to customers engaged in the upstream oil and gas industry on manufacturing equipment for the upstream oil and gas industry. The strength of the U.S. dollar contributed to the sales decline.

Sales for our Canadian operations were $36.4 million for the first quarter of 2015, the change in the exchange rate had the effect of reducing sales by approximately $4.5 million.

Sales by our Service Center segment for the first quarter of 2015 decreased $5.4 million or 2.4% to $225.8 million compared to $231.2 million of sales for the first quarter of 2014.

After excluding 2015, Service Center segment sales of $11.3 million from MT&S, Service Center sales – segment sales for the first quarter of 2015 decreased $16.8 million or 7.3% from the first quarter of 2014 on a same-store sales basis.

This sales decrease is primarily the result of decreased sales of bearings, metal working products and safety services to customers engaged in the upstream, oil and gas market or manufacturing equipment for upstream oil and gas markets. The strength of the U.S. dollar also contributed to the sales decline.

Sales of Innovative Pumping Solutions products decreased $5.6 million or 7% to $74.3 million compared to $79.9 million for the 2014 first quarter. This decrease was primarily the result of a decline in capital spending for oil and gas producers and related businesses.

Sales for Supply Chain Services increased $4.1 million or 11.1% to $41.5 million compared to $37.4 million for 2014 first quarter.

The increase in sales is primarily related to increased sales to new and existing customers in the automotive, petrochemical, mining and gas turbine industries which were partially offset by decreases in sales to customers in the oilfield services and oilfield equipment manufacturing businesses.

When compared to the fourth quarter of 2014, sales for the first quarter of 2015 decreased $40.9 million or 10.7% this decrease was primarily the result of declines in sales to customers engaged in the upstream oil and gas industry and related industries.

This sales decline has occurred in connection with these significant decline in the number of drilling rigs operating at U.S. and Canada and a decline in capital spending for oil and gas producers in related businesses. Strengthening of the U.S. dollar also contributed to sales decline.

First quarter 2015 sales by our Service Center segment decreased $26.7 million or 10.6% compared to the fourth quarter of 2014. First quarter 2015 sales for Supply Chain Services increased $600,000 or 1.4% compared to the fourth quarter of 2014.

First quarter 2015 sales of Innovative Pumping Solutions products decreased $14.8 million or 16.6% compared to the fourth quarter of 2014. Gross profit as a percentage of sales for the first quarter of 2015 decreased by approximately 50 basis points from the prior corresponding period.

This decrease is primarily the result of MT&S having a lower gross profit percentage of 20.6% compared to the 29% gross profit percentage for the remainder of DXP.

On a same-store sales basis, gross profit as a percentage of sales decreased by approximately 20 basis points, this decline as a percentage of sales is primarily the result of an approximate 560 basis point decline in the gross profit percentage of $44 million of sales of safety related products and services in the first quarter of 2015.

The decline in the gross profit percentage 30% for the first quarter 2015 from 35.6% for the first quarter of 2014 for safety related products and services is primarily the result of decline in sales of higher margin safety services work in upstream oil and gas markets due to a significant decline in number of drilling rigs operating in the U.S.

and Canada. Gross profit as a percentage of sales for the first quarter of 2015 increased to 28.7% from 27.9% for the fourth quarter of 2014, this increase was primarily the result of B27 achieving our higher gross profit margin at the first quarter of 2015.

SG&A for the first quarter of 2015 decreased $600,000 or eight tenths of a percent for the first quarter of 2014. After excluding first quarter expenses from MT&S of $1.8 million, SG&A decreased by 3% on a same-store sales basis.

Health care claims increased $1.8 million or approximately 62% over the corresponding period excluding the increases in health care claims a 5.2% decrease in SG&A on a same-store sales basis is consistent with the 5.2% decrease in sales on a same-store sales basis.

As a percentage of sales, the first quarter 2015 expense increased approximately 55 basis points to 23.7% and 23.1% for the prior corresponding period on a same-store sales basis, primarily as a result of increased health care claims, the effect of increased health care claims was partially offset by reduced incentive compensation.

SG&A for the first quarter of 2015 decreased $1.1 million or 1.4% from the fourth quarter of 2014, as a percentage of sales SG&A increased to 23.4% from 21.2% for the fourth quarter of 2014, as a result of $700,000 of increased health claims over $1.5 million of increased payroll taxes which is a normal first quarter event in payroll taxes, combined with economies of scale, working in reverse when sales declined.

Corporate SG&A for the first quarter of 2015 increased $900,000 or 9.1% from the first quarter of 2014 and decreased $50,000 or four tenths of a percent from the fourth quarter of 2014, the year-over-year increase was primarily the result of $1.8 million from increased health care claims, the quarter-over-quarter decrease is primarily the result of decreased incentive compensation.

Interest expense for the first quarter of 2015 decreased 21% from the first quarter of 2014 and 8.4% from the fourth quarter of 2014.

These decreases were primarily due to paying down debt during 2014 and 2015, total long-term debt decreased approximately $6.4 million during the first quarter of 2015, during the first quarter of 2015 the amount available to the borrowed under our credit facility decreased approximately $9.7 million to approximately $41.3 million.

This decrease was primarily the result of a $4.8 million decline in defined EBITDA as defined under the loan agreement. Our bank leverage ratio was 2.95 to 1 at March 31 2015. At March 31, our borrowings under the credit facility were at a rate of approximately 2.17%.

During the first quarter we purchased 191,420 shares of DXP common stock for approximately $8.9 million, capital expenditures were approximately $3.6 million for the quarter, cash on the balance sheet at March 31, 2015 was $2.4 million an increase of $2.3 million from December 31, 2014, Net cash provided by operating activities was $22 million for the first quarter of 2015, accounts receivable and inventory balances were $212 million and $112.7 million respectively at March 31, 2015.

Now I’d like to turn the call over to David Little..

Thanks Mac and thanks to everyone on our conference call today. Total DXP revenue of $341.6 million for the first quarter was down 2% year-over-year and I appreciate all the hard work of our DXP people who have worked as a team through these tough market conditions.

Net sales in the first quarter results were in line with our expectations and reflect our in market exposure discussed during our Q4 earnings call. Our customer base during the first quarter has responded to market conditions by cutting capital budgets, seeking price concessions, delaying order placements and project timing.

However our plan is to remain changed, we will continue to focus on generating cash, cutting cost were appropriate and driving gains in market share. During the first quarter, we experienced strong organic growth within Supply Chain Services, sales were down within the Service Center and Innovative Pumping Solutions.

This was primary driven by softness in the upstream drilling development and completion, upstream production and mining markets. DXP’s first quarter results were also negatively impacted by the strengthening U.S. dollars, these declines are mitigated by strength in our chemical, food and beverage and MRO industrial markets.

From a strategic perspective, we will use our financial resources and positive cash flow to navigate through this cycle and pursues strategic opportunities arising from the current market.

We believe certain end markets will continue to be challenged in the coming quarters but we will continue to manage through this downturn focused on reducing cost, protecting our market position and delivering superior execution in solutions our customers expect of DXP.

Our first quarter results reflected our end market exposure in the reverse operating leverage you get within distribution with sales decline. However I’m pleased that we generated $18.4 million of free cash flow, our leverage ratio of 2.95 to 1.

Subsequent to the quarter end, we completed the acquisition of Tool Supply, Inc a leading distributor of cutting tools, abrasives, coolants, machine shop supplies. Tool Supply provided us additional end market diversification and geographic reach. As we move through the year, we will monitor our cash flow generation cost and working capital.

Allow me now to focus on summarizing the activities within our three business segments, Service Centers, Supply Chain Services and Innovative Pumping Solutions. The Service Centers segment’s year-over-year sales decreased 2.35% and operating income decreased 6.39% for the same period.

Several factors contributed to the financial challenges we faced this quarter, sluggish GDP growth, negligible price inflation, overall margin pressures specifically from upstream oil and gas, weak demand from mining and agricultural customers and the currency strength of the dollar.

The accumulative effect of these headwinds impeded efforts to grow historical organic rates while impacting margins. From a product perspective, DXP Service Center experienced modest growth in rotating equipment and revenue declined from metalworking safety products and services and bearing and power transmission product divisions.

Margins remain strong within rotating equipment and we experienced meaningful margin improvement with in the bearing and power transmission. Margins declined in product safety and services and metalworking.

The softness we experienced from a sales and margin perspective were primarily driven by the upstream drilling development and completion market as well as the OEM oil and gas customers.

Net sales we’re encouraged and experienced strong growth in Service Centers in the chemical upstream production, downstream, food and beverage markets, additionally we continue to add diversification to our Service Centers end markets through new customers and acquisitions, subsequent to the quarter end we completed the acquisition again of Tools Supply.

Tools Supply added Service Centers customers in transportation, aircraft, general machining, food processing, aerospace and OEM markets. This follows the efforts we have been undertaking over the past year to add businesses that have good end markets outside of oil and gas.

Moving into the second quarter of 2015, we anticipate a continued deceleration in upstream drilling, development and completion and OEM oil and gas customers. To minimize our financial impact, we will continue to focus on taking market share from non-service oriented distributors and expanding cost control measures that began in the first quarter.

The present economic environment plays to our strength of industrial customers are looking to improve their business performance.

Our leadership team and employees have weathered difficult economic cycles in the past and have the expertise and passion to improve their overall production in financial performance while making smart local decisions around the businesses. We look forward to competing and winning in 2015 as we take market share in both good and bad markets.

Innovative Pumping Solutions Q1 2015 Innovative Pumping Solutions revenue of $74.3 million for the first quarter of 2015 was down 7% year-over- year, this was primarily driven by upstream production activities as orders were slower than what we experienced during the first half of 2014, continued fluctuations in oil prices has created difficulty in predicting purchasing activities on projects related to upstream production.

As said we are encouraged by the projects that are getting funded and our ability to maintain margins as evidenced by a slight increase in our year-over-year gross margins. We still have room for improvement in IPS’s operating income margins as we are still working in improvements at Natpro.

Our mining project, primarily copper mining continues to be depressed despite the recent hopes around global demand and increases domestically. As expected our Midstream sector continues to produce the majority of IPS’s quote and order activity.

This has been driven by Eagle Ford, Permian, Bakken Shale Plays and includes our overall portfolio of products and services. He Marcellus continue to provide opportunities however not at same rate as the other shale formation.

The order profile for the majority of the products being quoted and sold in the Bakken continue to be associated with IPS multiple LACT unit designs, there has been an increase in opportunities associated with salt water injection packages as well as production facility in terminal pump packages.

As said we are keenly aware that the LACT unit markets in the Eagle Ford and Permian shale plays have traditionally been at lower margins, our remanufacturing equipment and relay business remains consistent, this equipment is also being utilized primarily in the Midstream market.

Offshore upstream production continues to remain solid, some of the active projects have been placed on whole from a procurement perspective however the project engineering status continues to move forward, this is a positive sign and we maintain a long-term positive outlook on this market.

A recent fiberglass pipe order on an active projects reports us positioned. In summary, we believe our North American IPS footprint and facilities will allow us to manage effectively as we move through 2015 and face the volatility in our various end markets.

Supply Chain Services, DXP Supply Chain Services experienced a 11.l% increase in revenues year-over-year with a 7.9% operating margin.

Implementation expenses at new sites in 2014 incentive payouts had a small effect on operating income margins, implementation cost will gradually improve going forward as the size begin to scale, Supply Chain Services have one customer close their facility during Q1 in contrast we completed implementation for two onsite locations which were expansions of existing customer relationships and added one offsite location.

From an end market perspective, Supply Chain Services fall strengthen the food and beverage and general industrial markets consistent with all of DXP, we experienced decline in supply chain sites for oil and gas OEMs additionally SCS experienced growth in the bearing and power transmission, safety products and metalworking product divisions.

SCS is implementing several new sites in Q2 which will result in additional onsite locations coming online by mid Q2 and Q3, the ramp up time in pro forma revenue is usually six months and growth is anticipated in Q3 and Q4 2015 and beyond.

The SCS team also secured multiple renewal agreements from several large accounts increasing our opportunity for growth of additional sites.

The unfavorable economic outlook for the upstream oil and gas industry has long reaching arms and to many of the industries that service or provide equipment, several of SCS largest accounts are involved directly and indirectly with the upstream oil and gas markets, we see this as an opportunity to help these customers reduce cost and save money in their supply chain.

In conclusion, the good markets were not as good as we hope and the down markets were about as expected.

Mining which is 2.8% of our revenues was down 23.1%, upstream drilling, development and completing represents 18.7% of our business was down 16.6%, petrochemical which represents 3.1% of our business was down 9.2%, transportation which represents 2.1% of our business was down 8.8% and upstream production which represents 22.6% of our business was down 6.7%.

Agriculture which represents 1.7% of our business was down 5.7%, Midstream which represents 18.1 was essentially flat with 0.4% decline. Resale which represents 3.2% of our business was down 0.3%.

Chemical which represents 3.7% of our business was up 12.6%, general industry was represented 3.5% of our business was up 8.3%, food and beverage which represents 4.7% of our business was up 6.7% and downstream which represents 6.2% of our business was up 3%. Pharmaceutical which represents 1% of our business was up 0.5%.

I believe that the DXP management team will use this downturn in the oil and gas industry to increase our presence in hit rate to gain profitable market share.

I believe that this downturn in the oil and gas will be like all the others when demand and supply get out of balance and it takes about one year to bring the supply and demand back in to balance. Thank you for your time and we’re now open for questions..

[Operator Instructions] And our first question comes from Matt Duncan with Stephens Incorporated..

Hi guys..

Hi Matt..

I want to start by just see if we can maybe get an update from you what’s your thoughts on just we look at –how do you think your revenues maybe down this year, I know last call you said kind of low single digits but I guess since that time we’ve seen energy exposure prop-up within industrial exposure from a lot of your peers and rig counts probably fallen more than I suspect most people had thought it would.

So as you look at the business today, what kind of revenue decline do you think is reasonable to expect this year?.

Well I guess what is little disappointing to us is that historically when oil and gas has been down, the rest of the economy does a whole lot better and not I guess we can point possibly to the strength of the dollar and say what we’re just not getting that other side of the coin which would offset by itself, yes I think it’s safe to say that if oil and gas prices stay depressed and if the dollar stays at a premium of 20%, 25% over other currencies then we’re going to be scrambling to sell everything we can.

How that equates into a percentage I’m not sure, I’m trying to figure out how to grow business in a down market and it’s pretty damn hard.

But I would think that our Q2 would be just really ever so slightly down from our Q1 and the reason I feel that way is we – you have to – I guess we need to understand the couple of things, first of all when we look at oil and gas and we talk about drilling, development and completion that segment of it has two parts that are hurting us none of which is IPS by the way which may surprise you.

But it’s really the safety services piece where we’re all drilling rigs and things and then it’s the OEM piece in other words nobody is making frac trucks and so we’re not selling any equipment that goes on that piece of OEM equipment and so there is a whole lot of OEMs that are all in that completion and development that is causing our cutting tool business and our bearing business to be down in those sectors.

Production is a different animal that’s where IPS does play of course they play in Midstream too.

But on the production side of things, people are drilling, they’re drilling the same leases and things and they’re not competing those wells and so when they don’t complete them that’s causing some projects that we would think that we would normally get and would be a continuation even with smaller capital budgets have slowed up somewhat.

So that doesn’t mean that we’re completing wells because we are it doesn’t mean that there is not any new production facilities being built and being brought online because there are. So we’re getting orders but it’s just not at the same rate that we got last year, so we’ve to realize that IPS is going to continue to get softer as the year goes by.

The flip side of that is in my opinion is that if demand and supply of all gets up in to balance then what’s going to happen is that these wells they didn’t frac and things like that will dollar level come back, it will come back quicker you can think well that quicker is going to cause us to get out of supply and demand again.

I’m not smart enough to know if that’s true or not but I do feel like that most of these cycles have left to year and so we are and we’re hearing of people that are saying we’re kind of 2015 is just gone and so we’re going to see what our budgets are for 2016 and possibly ramp backup that’s all based on the fact that the supply and demand get imbalanced because if they don’t, we’ll then I guess we have another bad year..

Okay. I greatly appreciate the detail.

So looking at IPS then there is couple of interesting things there I mean it sounds like you’re still seeing okay demand for the time being, you mentioned timing is something you always have think about with IPS, should that business just trend down quarterly through the year or is there a chance of 2Q as you complete some of the stuff you’ve been working all and could actually be up before we take that stuff down?.

Yes that’s a great question because I believe that IPS is forecasting slightly up in the Q2 versus Q1 and I think they feel like they’re go to be fine for the whole year but I can’t help to think that as the second half of the year rolls around unless we start seeing $75 oil or something that they’re going to still trend slightly down..

Okay. So 2Q pretty flat and down from there that helps.

Last thing from me and then I’ll hop back in to queue just on SG&A cost given that things are tracking lower than I think you thought they were going to be because I know you thought like I said kind of low single digit declines and now it’s just going to be more than that, are you guys getting more aggressive from a cost control perspective and then obviously if your revenues are down sequentially, are we safe assuming that there is going to be a decent size sequential decline in SG&A cost as well as you take fixed cost out and those variable expenses will be down?.

Yes I think we have to realize how fortunate we are as a company that we have very, very high incentive program.

So people will take a pay cut because we’re not making as much money possibly, or they’re selling as much quicker possibly and so lot of adjustment happens naturally but if we are looking at somebody that’s not making money, they happen to be in a bad market and their sales are down significantly we’ll then then, we will be in top of rightsizing that particular station pretty quickly..

Okay.

So there is some cost control actions left to help on the SG&A side the way we should read that?.

Yes not but don’t – we’re not trying to cut into people that are producers, we’re not trying to cut into things just because into we would rather try to maintain our service levels through our customers and maintain market share and maintain things the best we can, keep as many peoples, employ this we possibly can but at the same time it is fair to say that if we can afford the probability is an objective around here and so we’re going to make adjustments that are necessary to make us productive as we can be with the size, volume of business we have..

Okay. I appreciate David. Thank you..

Okay. And we’ll go next to Ryan Merkel with William Blair..

Hi guys, how are you?.

Ryan, good..

So my first question can you just talk about the cadence in the first quarter did things get a little bit worse in March versus January and February and then maybe how did April work relative to March, I’m sort of wondering if we found sort of a bottom or if things are sort of decelerating?.

I’ll give you the average day sales in the first quarter and January sales for business they were $5,285,000 in February it’s declined $5,174,000 and in March it increased $5,778,000 and it’s fairly typical for us the January and February start out slow and that March increases a lot..

Okay.

And do you have April at this point?.

It’s $5,422,000..

Okay..

21 day months then the first quarter was 63 days, $5,422,000 would be the average daily sales with that, so it’s down 7% and also is an unusual if the first month after the end of the quarter goes down a lot for us..

So what we don’t do, what is lumpy in there is capital projects and so we tend to ship out a lot of capital projects in March and that’s why it’s typically up and it’s why the first month after that is typically going to be down. So I don’t think the 7% is necessarily a fair number..

Again breakup in Canada..

Yes right, okay..

So I don’t well let me just say I personally don’t think 7% is the right number but if you do that….

Yes I will look out and careful not to extrapolate too much but it just seems like based on the other peers that I follow it seems that things have kind of continued to weaken as we looked at March and April and of course disability is very low.

So I guess from your standpoint and selling through that you don’t see any signs that things could be stabilized at all, you sort of thinking second half to be a little more challenging than the first half is that right?.

I think that’s right well, I really do is and the reason is because these companies are having these pretty big lay-offs and that means all companies are not having as bigger lay-offs but they got people that are core geologists, core engineers et cetera and but at the same time they’re kind of they are just same like well we know that the oil and gas business cycles every five to seven years and this is a down cycle normally last one year will give up an extra..

Right.

Well let me ask you David what about the thesis that this cycle the rigs have come down faster than any previous cycle, so perhaps maybe you could see a trough in the rig count maybe now second quarter, early third quarter is that something you buy into?.

A trough would have, I’m trying to understanding the question….

I make sure I understand the question before kind of answer it.

What’s the trough is that, it’s going to, went down steeply and now we’re thinking it’s going to do – it’s going to just stay down or is it going to bounce back quickly?.

I guess it won’t..

It will just bottom faster, so potentially before people thought the weakness here could spread into maybe 2016 now people are thinking well maybe we could find a bottom in late second quarter, early third quarter..

Well I’m all for that. Certainly just like that..

Fair enough. Fair enough. .

I think – I think that everybody is pretty pleased that cash flow is king, so everybody is pleased that their cash flow is getting a little somewhat better but I think until price of oil gets more like 70, then you’re going to see activities start increasing and until you do I’m not sure you’re going to..

Okay..

You’re going to see more maintaining and still doing things and then go to zero it’s just….

I don’t know how wide spread this is but the rig count isn’t necessarily a perfect indicator, I mean there are I know one situation we’ll have a budget for the year on what they’re going to spend on drilling and now they’re cutting back more rig because they’re being so efficient drilling wells faster that the sound budget there letting goes more rig even though they’re drilling – they’re going to drill all the wells like budgeted the drill those going to do a few rigs..

Right, right. Okay.

One last question for me you mentioned a bit of price deflation I think that was sort of isolated in the energy area, I’m just wondering what types of price decreases are you passing on or providing and then are you seeing any price deflation or price competitiveness in some of the other general industrial markets at this stage?.

Well we’re not seeing anything unusual on the price increases for any market. In fact I’m not terrified by the oil prices, I’m frankly terrified by the strength of the dollar and the reason for that is that we’re domestic producer here and so we find ourselves also competing with other countries they just have a currency advantage..

But you haven’t seen any price deflation increased price competitiveness in your general, industrial markets yet, is that fair?.

That’s fair, that’s fair..

That’s fair. Okay. Great, I’ll get back in line. Thanks..

Thank you..

[Operator Instructions] We’ll go next to Joe Mondillo with Sidoti & Company..

Hi guys..

Hi Joe..

First question so I’m trying to understand here a couple of things first off in terms of Service Center I don’t think that the supplies at all you highlighted that the 20% of your business that’s related to upstream is mostly in that sector when you reported the fourth quarter numbers and it was off a bit.

So I don’t think that is a surprise, the big surprise at least for me was that IPS, you highlighted that backlog was up at the end of the year, you highlighted that orders were relatively solid actually in January and February in the 4Q call and you had a very easy comp related to the B27 issues a year ago.

So I was relatively surprised what you said on the 4Q call regarding the backlog and everything and the easy comp and to see you fall short of a year ago was a little surprising for me.

So could you help me understand whether order is cancelled, pushed out just trying to understand exactly how that’s also quickly because that’s generally a backlog business so even as the market falls off a cliff overnight whether I must cancellation of the orders and maybe that’s the case that should hold up for few months until the backlog falls off?.

I think that’s a fair assumption but we did not have any orders cancelled that I’m aware of – we didn’t, we had some things that possibly didn’t get shipped and we see the second quarter being little better.

We have a component of business there is not 100% backlog driven, we have – packaged units that we can do in the matter of a week or two and so there is not all big project stuff and then we had I was little surprised to with part of the revenues they got sort of generated with Indian – not Indian, Innovative Flow Solutions and the point there is that they feel like they’re going to have a good year.

So I have a lot of stuff that’s still coming and so I don’t possibly answer than that. I don’t have every answer than that. I’m sorry..

So could there potentially be maybe possibly a timing issue combined with some of the short cycle or not short cycle but short-term type work of that business does provide sort of being more effective than maybe you originally anticipated, is that maybe a good way of looking at it?.

I would think that when we’re talking about the 1231 backlog, beginning of the year backlog, there is inherent lumpiness in Innovative Pumping Solutions. So we get there has been a softness in incoming orders and softness in the stay business a little bit but the forecast would be the second quarter to be up a little or flat.

So that I’d say some of it is, the orders we’re talking bout in the first quarter is just kind of the timing of when they go out, it’s clearly the new business isn’t coming in at fast we know and yes there are lot of the quotes those haven’t come through and they are clearly in the way than some of projects that we’ve been quoting that we hope that we had orders on that..

But the orders that you did see sort of in January it sounded like they were sort of solid right, so that shortages sort of fall off pretty quickly throughout the quarter as IPS?.

Yes let me look at something..

I guess I can follow up with you on offline..

That will put money smarter upgrade..

One thing that I wanted to ask and you touched on it in the last quarter but in terms of pricing IPS orders have weakened it sounds like are you beginning to see significant pricing competition with that and also in addition to that, a large part of that business is Midstream focused.

Have you began to see any sort of success from the upstream part of the sector sort of flowing into Midstream if this is the type of sort of numbers that we saw in the first quarter which you’re relatively most likely still feeding lot of pretty solid backlog are we going to see some serious pressure in the back half of the year IPS if Midstream starts to see some effect as well..

Well I think that’s a possibility in the sense that we’re not seeing anything Midstream that’s causing us to have concern but certainly the longer that new production is not bringing broad on stream or we’re not replacing a lot of oil production the longer this last, more likely the Midstream will be affected. There is no question about that..

Okay. And but you’re not seeing it sort of in CapEx budgets or talk of projects being pushed out or delayed nothing like that. .

Not yet. .

Okay.

And just to clarify, I’m just trying to understand still why would that the IPS business see or seem to think that the year is going to be relatively solid relative to at least the first quarter if orders are sort of decelerating over the last few – getting worse over the last few months would that sort of reflect very challenging second half of the year, even more challenging than the first quarter.

Or is there still pretty lofty backlog that is just a timing issue and you still got some work and maybe that you work off that and that hold out the business for the next couple of quarters but then maybe is more so like a first half of 2015 issue?.

Our plan is when they talk about their business I think they’re talking about having a profitable business and so yes I think they’re seeing orders, they’re getting orders, they’re not getting them at the rate or instead they’re not getting them at the rate that they used to but is not going to zero.

So they feel like that even though there will be some decline in IPS business that’s going to start happening after the second quarter that they’re going to be able to maintain profitability..

Okay.

In regard to Service Center on the last call you mentioned that you’re sort of talks or negotiations with your oil and gas customers certainly want to see I guess lower pricing but you said on that call that a large part of that was going to be offset by lower labor cost, are you still sort of thinking about that? Is that still sort of the case and in terms of where we were in the first quarter for Service Center, is that sort of when you think about the margin at that segment, do you think will see more downside I guess into the second quarter and then maybe level out or how do you think about that?.

Well what we’re willing to do, I mean we’re as a distributor, we only have so many different things, we can possibly do but we are doing everything possible to help lower the coal companies cost and first of all the oil companies are historically the people that yet pay online and they’re paying way more than they should be.

So and then we have to pay people a lot too, so that they don’t go, work for an oil company. So the pay thing is being adjusted, it’s something that we’re in control of, so we can adjust that and then the other piece of that was said was well they want to have a certain type of pump and they’re insisted upon that pump.

Well we’re not able to really get our manufacturers to give us a much better price and so we don’t have any savings there but what we can do is often time offer them a different pump one that maybe not as good but can still get the job done and it might have a 20%, 30% savings and so therefore we’re offering that up as an alternative and they can either take it or pass on it..

.:.

Right okay and then just lastly in terms of the Supply Chain Services business, how much oil and gas exposure do you have with that business.

Is it significant or not?.

My guess it’s actually is 10%..

Okay. I would say up 10%..

In regard to that I guess maybe 10% I know it’s a small piece of the overall business I guess but that seems to be a business that customers in certainly a downturn would be quickly possibly and you can correct me if I’m wrong to potentially reduce our cut, it’s essentially an outsourced service right.

So do you see any risk of losing maybe that part of the business at all or?.

So Joe you’re absolutely correct. We normally see this when a company is grows going out of business and having to fire lot of people so they will often times fire us instead and keep their own people. So that comments very, very valid.

In the example we have the customer is really going the other way and that is that he is saying wait a minute, you guys are saving us a lot of money and so we have four other plants and so even though each plant may be buying less in this particular case they are ultimately buying more from us because they’re giving us more plants and but your theory is right.

That can happen the other way and this particular example is not..

Okay. All right, thanks for taking my questions. I appreciate it..

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