David Little - Chairman, President and Chief Executive Officer Mac McConnell - Senior Vice President-Finance, Chief Financial Officer and Secretary.

Matt Duncan - Stephens Inc. Joseph Mondillo - Sidoti and Company.

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 of decreased sales of bearings, rotating equipment, metalworking products, and safety services to customers engaged in the upstream and midstream oil and gas markets or manufacturing equipment for the oil and gas markets.

Sales of Innovative Pumping Solutions products decreased $6.7 million or 12.8% to $45.5 million compared to $52.2 million for the 2015 fourth quarter. This decrease was primarily the result of the decline in capital spending by oil and gas producers and related businesses.

Sales for Supply Chain Services decreased $2 million or 5.1% to $37.1 million compared to $39.1 million for the 2015 fourth quarter. The decrease in sales is primarily related to decreased sales to customers in the oilfield service and oilfield equipment manufacturing and truck manufacturing industries.

When compared to the third quarter of 2016, sales for the fourth quarter of 2016 decreased $7.7 million or 3.4%. Excluding $7.1 million of third quarter 2016 sales of Vertex on a same-store sales basis, sales for the fourth quarter declined $700,000 or 0.3% from the third quarter.

This decrease is primarily the result of the fourth quarter containing three or 4.7% fewer business days than the third quarter. Fourth quarter 2016 sales by our Service Center segment decreased $12.4 million or 8.1% compared to the third quarter of 2016.

Excluding sales of Vertex on a same-store sales basis, Service Center segment sales declined 3.7% from the third quarter of 2016, primarily as a result of 4.7% fewer business days. Fourth quarter 2016 sales for Supply Chain services decreased $1.1 million or 2.7% compared to the third quarter.

Fourth quarter 2016 sales of Innovative Pumping Solutions increased $5.7 million or 14.3% compared to the third quarter of 2016. Gross profit as a percentage of sales for the fourth quarter of 2016 decreased by approximately 40 basis points from the fourth quarter of 2015.

On a same-store sales basis, gross profit as a percentage of sales, increased by approximately 10 basis points.

This increase is primarily the result of the approximately 540 basis point increase in the gross profit percentage for the IPS segment combined with a 115 basis point increase in the gross profit percentage for the Supply Chain Services segment partially offset by 135 basis point decline for the Service Center segment.

The 540 basis point increase from the fourth quarter of 2015 and the gross profit percentage for the IPS segment is primarily the result of the unusually low gross profit percentage experienced during the fourth quarter of 2015.

The fourth quarter gross profit percentage for Supply Chain Services segment increased 115 basis points primarily as a result of decreased sales of lower margin products to oil and gas and truck manufacturing customers.

The fourth quarter gross profit percentage for the Service Center segment decreased approximately 135 basis points on a same-store sales basis from the fourth quarter of 2015 primarily as a result of lower gross profit margins on Safety Services.

Gross profit as a percentage of sales for the fourth quarter of 2016 decreased approximately 50 basis points from the third quarter of 2016. This decrease is primarily the result of the sale of Vertex which had gross profit percentages higher than the DXP average.

On a same-store sales basis, gross profit as a percentage of sales for the fourth quarter of 2016 was flat compared to the third quarter of 2016. SG&A for the fourth quarter of 2016 decreased $18.5 million or 25.8% from the fourth quarter of 2015.

After excluding fourth quarter 2015 expenses for Vertex of $2.1 million, SG&A decreased $16.4 million or 23.6% on a same-store sales basis. The decline in SG&A is primarily the result of cost control measures including headcount reductions.

As a percentage of sales, the fourth quarter 2016 expense decreased approximately 180 basis points to 23.8% from 25.6% from the prior quarter corresponding period because of the cost reductions. SG&A for the fourth quarter of 2016 decreased $5.9 million or 10% from the third quarter of 2016.

After excluding third quarter expenses for Vertex of $1.9 million, SG&A decreased $3.9 million or 6.9%. This decline in SG&A is the result of the continued cost control measures. As a percentage of sales, SG&A decreased approximately 170 basis points from the third quarter of 2016 because sales declined 3.4% and SG&A declined 10%.

Corporate SG&A for the fourth quarter of 2016 decreased $4 million or 38.3% from the fourth quarter of 2015 and decreased $3.1 million or 32.5% from the third quarter of 2016. This year-over-year decrease is primarily the result of reduced salaries, health claims and bad debt expense.

The sequential decrease is primarily the result of reduced health claims and bad debt expense. Health claims were lower. Fourth quarter health claims were approximately $1 million $750,000 less than third quarter health claims and $1 million less than 2014 health claims.

The bad debt expense in the fourth quarter was approximately $2 million less than the third quarter and the fourth quarter of 2015 primarily as a result of us being aggressive on recording for bad debt expense during 2016 which turned out to be the results were better than we had forecast.

Interest expense for the fourth quarter of 2016 increased 27.7% from the fourth quarter of 2015 due to increased interest rates.

Interest expense for the fourth quarter of 2016 declined 10.9% from the third quarter of 2016 primarily as a result of paying down debt during the fourth quarter was $45.9 million of proceeds from sales of common stock and 31.5 million of net proceeds from the sale of Vertex during the fourth quarter of 16.

Total long-term debt decreased approximately $93.6 million during the fourth quarter of 2016. Fourth quarter free cash flow was $10.9 million. Fourth quarter EBITDA for bank purposes was $22.5 million. Our bank leverage ratio was 3.78 to 1 at December 31, 2016.

At December 31, 2016 our borrowings under the credit facility were at a rate of approximately 5.89% which since year end has increased to approximately 5.99% today. At December 31, 2016 total outstanding debt was $225.7 million. Availability under the most restrictive covenant of the credit facility was $37.3 million.

As of yesterday, our debt was approximately $4 million greater than the year-end balance. This is very typical during the fourth quarter that our debt increases because of payroll taxes starting over, property taxes in Texas are due in the fourth quarter and we pay most of our insurance premiums for the year during the first quarter of the year.

Capital expenditures were approximately $1 million per quarter. Cash on the balance sheet at December 31, 2016 was $1.6 million. Net cash provided by operating activities was $12.9 million for the fourth quarter of 2016. The accounts receivable balance was $148.9 million, the inventory balance was $83.7 million.

I would like to point out that the issuance of 2.5 million shares occurred on October 31, 2016. One third of those shares were not included in the fourth quarter diluted shares of 17 million 411, 000. Therefore the first quarter of 2017 weighted average shares should be at least 800,000 shares greater fourth quarter share count.

Now I would like to turn the call over to David Little..

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 new customers to capture more market share.

Our operational objective is summed up in one word, speed; fast deliveries, first serve, easy to do business with, and quality products and services. Within SCS business segment we are continuing to target customers on to have cost savings and their [indiscernible] spend.

As we are pleased as a team with our efforts in today's market environment and we are beginning to see light at the end of the tunnel. We believe we were taking market share particularly in pumps and metal working and our financial results will show gains as we move forward.

During the first half of 2016 oil prices continued to decline reaching up around mid-20s and in early February. This resulted in further declines in our customers operating and capital spending decisions as they focused on preserving and managing cash. This behavior by our customers continued through the second quarter and reached a low in early July.

Sustained low oil prices along with strong U.S. dollar and its negative impact on export demand continued to be a drag on manufacturing activity impacting the industrial side of DXP as well.

During the second half of 2016 oil prices slowly began to rise along with the rig count moving concerns of an outright collapse with prices well above the lows reached earlier in February and the rig count slowly risking market conditions started to firm along the bar.

DXP's actions during the first half on the SG&A side began to take hold and we focused on shoring up the balance sheet with a combination of free cash flow generation and capital raising. That said, oil and gas which his 40% of DXP's business today has found the bottom.

DXP's industrial other end markets outside of oil and gas is and 60% of our business today which also has found the bottom and shows signs of positive upward movement.

In terms of market conditions, while oil and gas conditions remain difficult through the quarter, we experienced a better than expected November and December and oil prices took a jump from the mid 40s to the low 50s beginning the week of Thanksgiving. Additionally rig count experienced the largest monthly increase in December.

That said, we historically and typically assume anywhere between six to nine months between rig ramp to production impact. This was pointed out more recently in Goldman Sachs research report.

With a fair amount of DXP's oil and gas exposure a tad too late upstream to midstream activity we believe we are moving along the bottom and have not yet experienced growth or increases that will materialize.

In terms of DXP's industrial markets, the ISM PMI manufacturing index continued to expand from October at 52% rating through December of 54.5% rating and frankly has continued into physical year 2017. This trend is an improvement over fiscal year 2015.

This creates and interesting time for our industrial end market exposure as order volumes are clearly still down as evidenced by DXP Service Center result. However, there has been market improvement and optimism we believe is being driven by the U.S. presidential election and a change through a more pro-business administration.

Other several factors are driving the optimism including the potential of increased infrastructure spending, lower corporate tax rates, and a reduced regulatory environment. As we look at our financial performance the fourth quarter reflects flat sales as compared to the third quarter and the continued softness in our end markets.

DXP's fiscal 2016 sales were $962 million or a 22.9% decline over fiscal 2015. Acquisitions continued to contribute positively. Fiscal year 2016 we added $15.1 million in sales. Cortech and Tool Supply have been great additions to the DXP team.

Supply Chain Service sales declined 7% while Service Centers declined 25% and Innovative Pumping Solutions declined 27%. Service Center Sales were $621 million. Innovative Pumping Solutions sales were $187.1 million and Supply Chain Services sales were $154 million.

The Service Center sales decrease was primarily driven by declines in all of our product divisions consistent with our oil and gas and industrial end market exposure. Innovative Pumping Solutions sales decrease was primarily driven by continued softness in our API business and more engineered modular process systems or what we call IMS.

Our order intake for this year remained flat speaking of 2016. A majority of customers continued to tightly manage budgets, limit project opportunities and those that are available are competitive which continues to provide margin pressures.

During the year we were able to increase gross profit margins within Supply Chain Services by 146 basis points while Service Centers and IPS gross profit margins experienced downward pressure by 90 basis points and 99 basis points respectively. DXPs overall gross profit margins decreased 71 basis points versus fiscal 2015.

This was primarily a result of pricing pressure on jobs and unabsorbed manufacturing overheads for individual orders for the IPS segment and product mix within the service centers. This was offset by an increase in Supply Chain Services gross margins which were driven by higher margin products mix within Supply Chain Services.

SG&A for the fiscal 2016 declined $58.3 million or 19.2% of fiscal 2015. The decline in SG&A is the continued results of actions we discussed during the first quarter of 2016 and reflect our efforts to optimize the business.

We continue to benefit from a decrease in payroll with incentive compensation and other expenses moving along with headcount and salary reductions. At the end of fiscal 2016 DXP had approximately 2453 full time employees. Again I would like to take this moment to thank all of our DXP employees who are with us.

They have done a great job making DXP a success. The tough decisions we made this year were made for the team we have in place today and they have done a remarkable job of creating customer following that is unmatched. Service Center operating income of 7.7%, while IPS and Supply Chain Services operating incomes were 5.3% and 10% respectively.

DXP's Supply Chain Services saw the operating income line increase 142 basis points year-over-year.

This was mainly due to the increase in gross profit reflecting our efforts to increase our products scope with more value added solutions for our customers and to continue to push for operational excellence applying technology in order to drive cost out of the supply chain.

DXPs overall income margin was 2% or $19.3 million which includes corporate expansion and amortization. Earnings per diluted share for fiscal 2016 were $0.49 compared to a loss of $2.68 per share in fiscal 2016, which included impairment expenses and the B27 working capital expense.

Earnings per diluted share in fiscal 2016 include the gain on sale of Vertex. Adjusting for the gain, diluted earnings per share for fiscal 2016 was $0.13. Overall DXP produced EBITDA of $56.8 million including the gain in sale of Vertex and free cash flow of over $44 million.

As a reminder, historically our free cash flow has a seasonal low in Q1 and improves during the year. In Q1 of 2016 we had a usage of $9.4 million driven by the unexpected decline in the business and working capital working against us.

In Q2 and Q3 we produced $17.7 million, $24 million of free cash flow respectively and in Q4 we produced $10.9 million in free cash. During the fourth quarter we also sold Vertex for $31.5 million. Additionally during the fiscal 2016 we raised a total of $52.2 million from the issuance of common stock in September and October.

The proceeds from Vertex and the issuance of stock were used to pay down debt and meet our debt obligations associated with the current credit facility. While we do not make a habit of providing quarter or full year guidance our view regarding fiscal 2017 still remains cautiously optimistic.

For the past two years DXP has operated in the midst of a prolonged recession in oil and gas and the industrial sector. We have executed well, worked from a play brook [ph] that leverages the experience and talent of our team.

This has led us to outperform other peers who would like end market exposure and allows us to confidently emphasize the fact that we have a business and a model that is resilient and customer driven. We have remained focused on providing our customers with exceptional service as well as creating new customer relationships.

We have used this period to retool and refocus the company positioning DXP well for the eventual upturn in the market. Going forward, we remain encouraged with the flattening of our business. DXP's strategic direction and cost reduction initiatives will position DXP competitively for the next up cycle.

We continue to build our rotating equipment footprint and capabilities which we will leverage across North America. Balanced growth which includes organic initiatives, sales alignment, and complementary acquisitions is still key to our strategy and growth.

This will allow us to continue to double our business during the next up cycle and provide unmatched capabilities that focus on serving our customers. So with that, we are now open for questions..

[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..

And that will conclude today's conference. We appreciate your participation. You may now disconnect..