DXP Enterprises' (DXPE) CEO Mac McConnell on Q1 2014 Results - Earnings Call Transcript

May.13.14 | About: DXP Enterprises, (DXPE)

DXP Enterprises, Inc. (NASDAQ:DXPE)

Q1 2014 Earnings Conference Call

May 13, 2014 10:00 AM ET

Executives

Mac McConnell - Chairman, President and CEO

David Little - SVP, Finance, Secretary and CFO

Analysts

Matt Duncan - Stephens, Inc.

Joe Mondillo - Sidoti & Co.

Holden Lewis - BB&T Capital Markets

Operator

Good morning ladies and gentleman and thank you for standing by. Welcome to the DXP Enterprises First Quarter Conference Call. At this time all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session. (Operator Instructions).

I would now turn the conference over to Mac McConnell, Senior VP of Finance and CFO. Please go ahead.

Mac McConnell

Thank you. This is Max McConnell, CFO of DXP. Good morning 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 2014 results, David Little will share his thoughts regarding the quarter, then we will be happy to answer questions.

Sales for the first quarter increased 20.1% to 348.5 million from the first quarter of 2013, after excluding first quarter 2014 sales from acquired businesses acquired during 2013 and ’14 of 53.4 million. Sales for the first quarter increased to 1.7% on a same store sales basis. This sales increase is primarily the result of one additional business day in the current period. Sales for the supply chain services segment decreased 2.8% to 37.4 million compared to 38.5 million for the 2013 first quarter. This decrease in sales is primarily related to declines in sales to customers serving automotive and truck manufacturing industries.

Sales of Innovative Pumping Solution products increased 92.4% to 79.9 million compared to 41.5 million for the 2013 first quarter. After excluding 2014 sales from acquired businesses of 32.6 million Innovative Pumping Solution segment sales for the first quarter of 2014 increased 14% on a same store sales basis. This sales increase primarily resulted from an increase in capital spending, by our oil and gas and mining related customers. Sales by our service center segment increased 10.1% to 231.2 million compared to 210.1 million of sales for the first quarter of 2013 after excluding 2014 service center segment sales of 20.9 million from acquired businesses. Service center segment sales for the first quarter of 2014 increased 1/10th of a percent from the first quarter of 2013 on a same store sales basis.

When compared to the fourth quarter of 2013 sales for the first quarter of 2014 increased 11.1%. After excluding 2014 sales from an acquired business of 30.4 million, sales increased 4.3 million or 1.4%. This sales increase is primarily the result of one additional business day in the 2014 first quarter compared to the 2013 fourth quarter. First quarter 2014 sales by our service center segment increased 3.1% compared to the fourth quarter of 2013. After excluding 2014 service center segment sales from an acquired business of 5.6 million service center segment sales increased 6/10th of a percent on a same store sales basis. First quarter 2014 sales for supply chain services increased 4.2% compared to the fourth quarter of 2013.

First quarter 2014 sales of Innovative Pumping Solutions products increased 49% compared to the fourth quarter of 2013 after excluding 2014 Innovative Pumping Solutions sales from an acquired business of 24.8 million, Innovative Pumping Solutions segment sales increased 2.8%.

Gross profit for the first quarter of 2014 increased 14.1% from the first quarter of 2013 compared to the 20.1% increase in sales. Gross profit as a percentage of sales decreased to 29.2% in the first quarter of 2014 compared to 30.7% for the first quarter of 2013. This decrease is primarily the result of businesses acquired in 2013 and ’14 having a lower gross profit percentage than the remainder of DXP and partially the result of changes in customer and product mix in the service center segment. Gross profit as a percentage of sales for the first quarter of 2014 decreased to 29.2% from 30.7% for the fourth quarter of 2013. This decrease was primarily the result of the lower gross profit margin for B27 and partially the result of changes and customer and product mix.

SG&A for the first quarter of 2014 increased 13.1 million or 19.8% from the first quarter of 2013. After excluding first quarter expenses from businesses acquired of 13.2 million SG&A decreased by one-tenth of a percent, as a percentage of sales SG&A decreased to 20.8% from 22.9% for the first quarter of 2014 as a result of the decline in SG&A for the remainder of DXP after excluding businesses acquired in 2013 and 2014.

SG&A for the first quarter of 2014 increased $13 million or 19.5% from the fourth quarter of 2013, as a percentage of sales SG&A increased to 22.8% from 21.2% for the fourth quarter of 2013. After excluding first quarter expenses from businesses acquired of $6 million SG&A increased by approximately 7 million, 2.8 million of this increase was related to the reversal of Natpro’s earn out in the fourth quarter of 2013 which decreased SG&A for that quarter. In addition there were $2 million of increased payroll taxes in the first quarter of 2014 compared to the fourth quarter of 2013 due to the fact that many payroll taxes have limited amounts of income on which payroll taxes are paid. Therefore the amount of tax paid generally decreases during the calendar year.

The remainder of the increase in the first quarter compared to the fourth quarter is primarily the result of a $2.4 million increase in SG&A for Natpro. This increase is primarily the result of cost for Natpro being classified as SG&A instead of cost to sales to conform with the rest of DXP.

Interest expense for the first quarter of 2014 increased 109% from the first quarter of 2013 and 151% from the fourth quarter of 2013. This increase was primarily due to the higher average outstanding balance of debt during the period. The increased debt was incurred to acquire B27. This increase in debt also increased the interest rate on our debt.

Total long-term debt increased approximately 275.9 million during the first quarter of 2014. During the first quarter of 2014 the amount available to be borrowed under our credit facility decreased approximately 40.7 million to approximately 113.4 million of availability.

This decrease was primarily the result of the increase in our debt; our bank leverage ratio was 2.99:1 at March 31, 2014. At March 31st, our borrowings under the credit facility were at a rate of approximately 2.16%. Capital expenditures were approximately $1.7 million for the quarter, cash on the balance sheet at March 31, 2014 was 12.1 million, accounts receivable and inventory balances were 250.3 million and 110.7 million respectively at March 31, 2014.

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

David Little

Thanks Matt. We have reviewed our first quarter results and while experiencing 20% sales growth year-over-year we are surprised by elements of DXP and not satisfied with our overall performance. We’re encouraged by the resilience and strength of our core DXP business and believe we have some work ahead of us for recent acquisitions. Specifically Natpro and B27 are not performing as expected.

Natpro lost $0.06 per share and B27 lost $0.06 per share. The results of Natpro have been negatively affected by slow economic environment in Canada, weather, exchange rates and two IPS type jobs where some of the engineering was outsourced to an Indian engineering firm and they miscalculated the piping. We continued to integrate Natpro’s Calgary fabrication management with our innovative pumping solutions management team in Houston. We feel confident that the necessary people processes and checks and balances are being addressed to make Calgary the quality and competitive fab shop that DXP will be proud of.

Our timeframe is over the next six months with improvements happening every day. Natpro’s Eastern Canada operations has been slow with some signs of improvements in the municipal space. As of 3/31/14 the rig count in Alberta is down 4% and down 1% overall in Canada.

B27 is a huge disappointment; we know that B27 would add some lumpiness to DXP but nothing like the first quarter results. We want to look at why we brought B27, why Q1 was so miserable and what the future looks like and why. By the way if I knew what I know now I will still want to buy this company but I would not be able to justify $290 million for it.

B27 expands our ability to service our customers' needs for high energy pump repair capability. It has credible API pump products with the shortest lead times in the industry and enhances complex engineered to order systems for oil and gas and power generation industry. B27 provides the platform for future growth in the international market. Our combined businesses dominate the remanufactured pump market with both inventory and capabilities. New products and markets for IPS' segment for power generation and air quality, the U.S. Supreme Court just gave the EPA the power to kill cold B27 has capabilities and products such as catalyst reduction units fuel, gas conditioning, NoX reduction units the clean-up coal plants and reduce emissions at natural gas powered plants. B27 has new products planned for coal such as mercury removal for coal and natural gas and sulphur removals for coals.

Q1 was less than expected at B27, due to delays in shipments by the pump OEMs in part a glut of the API orders that overloaded the front end processing capacity, APIs frontend will catch up with no impact on delivery dates and we have increased our staff to handle this increased workload. The transaction created some distractions and we experienced some higher medical cost as a result of the transition, but these are non-reoccurring items. IFS also moved into a new facility in Q1 which contributed to cost and distraction but they are settled in now.

Now we had a run out of old medical plan in addition to cost for the new medical plan which resulted in an overcharge the B27 group at 250k and so impacted a minimum and we also had two major claims.

We (make) [ph] the product, power and air quality market may be positioned to strengthen with the final decision by the Supreme Court regarding a cross-state air population rule we think we will -- this will further empower the EPA to clean up the coal power plants, we sell equipment for this, we build or build replacement plans using cleaner natural gas field which we also sell equipment for. So, either way as long as the time line is established and the EPA will be building -- the EPA will be building a market for us. The midstream market is strong and we see expansion of our opportunities here as we continue to gain traction in the Middle East specifically Dubai. We continue to add products to a lot of the API products while maintaining the best lead times in the industry, we have booked about 7.8 million from Dubai in less than a year.

The primary concern at B27 is the upstream offshore market. This market is softening due to increasing pressure of international oil companies to make final investment decisions in light of increasing cost time delays and soft projects based on future oil prices.

For example, partly due to local content requirements, projects are costing more and taking longer to complete and there has been probably a fivefold increase in project cost over the past decade. In fact IFS had a project cancelled this quarter due to the massive cost overdues on the entire project. Another example of this is that Petrobras who controls our 30% of the floater, inventory announced in February they will be reducing their five year CapEx budget by 7%. This kind of news causes other companies to rethink their economics and all this results in a delay.

We have had a lot of proposals out there but final decision making are not happening as timely as they have in the past. Also the failure of Nigeria to pass a comprehensive petroleum industry bill along with the political unrest in that country makes us believe that this will be a challenging region for the next three or so years. Accordingly we are moving our attention from there to other areas where the potential does exist we’re establishing a presence in Ecuador and are establishing representation in Angola. At the end of the day B27 still provides all the strategic advantages that we acquired it for, but the first step was not as strong as we hoped, but the team is intact and they have been through times like this before and we are confident that we will get what we want to be with this company.

When we look at other parts of DXP we are performing as expected, organic growth of 1.7% quarter over quarter, this is consistent with low gross -- slow growth domestically and weather factors in the first quarter of 2014. Organic profits were negatively impacted by gross margin pressures and our investment in people resources to grow in a slow growth environment.

IPS and their project business continues to be the bright spot of our segment business with 14% organic sales growth and 29.2% organic operating income growth. We expect our organic growth to be slightly higher than the general economy because of oil and gas, manufacturing, supercenters, modest negative growth in Canada caused by their economy and the drilling rig count decline.

Our profits as a percent of sales should increase organically as we reduced the number of investments that are not going to make it and a slow growth [indiscernible] which means we plan to focus on profits under management with an opportunistic slab on sales growth considered a bully approach to grow at all cost. Should the economy show signs of heating up, we will be more than glad about it with the playbook of growth strategies did not, then we will be more conservative.

Our base business continues to perform and we expect all three segments SCS, IPS, service centers to have a slow growth year. On the acquisition front, we are pleased to add Machinery, Tooling & Supply, our leading distributors of cutting tools, abrasive coolants, machine shop and industrial safety suppliers. MT&S is headquartered in Schaumburg, Illinois, is focused on customers in the oil and gas, general machining, automotive, power generation and industrial markets. DXP welcomes approximately 52 experts to our DXP family.

As for future acquisitions, our focus will be to improve our financial performance at Natpro and B27. We are now open for questions.

Question-and-Answer Session

Operator

Ladies and gentlemen, we will now conduct the question-and-answer session. (Operator Instructions) Your first question comes from Matt Duncan with Stephens Incorporated. Please go ahead.

Matt Duncan - Stephens, Inc.

So, David, obviously the first I'll dig into a little bit here is B27, this point knowing what you now know, what is a reasonable assumption for how much revenue that business can generate for you guys this year. And you guys revisited your accretion assumption from that acquisition based on that new revenue viewpoint.

David Little

Well, we are not going to give forecasted sales or profits but it’s not going to be accretive this year and it’s probably going to look at being accretive hopefully some time before the second half of 2015.

Matt Duncan - Stephens, Inc.

So, you don’t think there will be accretive earnings at all, you think it will end up being a dilutive acquisition this year now?

David Little

I hope it’s not diluted, but it’s not going to be accretive.

Matt Duncan - Stephens, Inc.

Okay. So, around breakeven is probably the right way to think about it. Do you feel like in anyways you were misled in that process or is it really just that their business changed as you are buying?

David Little

Yes and yes.

Matt Duncan – Stephens, Inc.

Okay. So, if there is a potential you are misled, and you (may be commented) [ph] you would still buy but you probably wouldn’t pay what you paid for it. Have you looked at what, you do think it’s actually worth and is there any chance you can (call) [ph] back any of that purchase price?

David Little

Well, that was a Board member question and I think after I thought about it for a while, I think we overpaid a $100 million worth.

Matt Duncan - Stephens, Inc.

And what about the ability to get to -- if you were indeed misled, is there any ability to get any of that back?

David Little

I think at this point we would have to prove (to all) [ph].

Matt Duncan – Stephens, Inc.

Okay, so maybe hard to do at the end of the day.

David Little

Right.

Matt Duncan – Stephens, Inc.

Okay. So, remind us how much of their business is international because it sounds like that’s really where the lion’s share of the weakness is coming from there.

David Little

A third.

Matt Duncan - Stephens, Inc.

About a third? Okay, all right. So, moving onto Canada, other than Natpro acquisition you guys obviously made some safety services acquisitions up there back in 2012, how are those performing? And then on Natpro, do you feel like they have sort of bought in to the DXP way of doing things on IPS, so that you won't see them outsourcing anymore engineering?

David Little

Yes, Natpro is a fully owned board. We feel really good about the fact that we're overcoming any kind of cultural issues. They are engaged. We're making the appropriate people changes and we're having very positive meetings. We're double-checking their engineering here in Houston. There is talks about consolidating engineering. There is a lot of positives about Natpro, again we like that company because they do have fabrication capabilities and they also have a national presence across Canada. And so, it’s just, it’s so ironic they were having trouble with some pump companies when we were founded as a pump company and its frankly the core of what we should do best and so we’re pretty optimistic about our abilities to make Natpro a real quality company.

Matt Duncan - Stephens, Inc.

Okay, so let’s talk a little bit about the organic business and your organic growth rate was I think 1.7% a quarter. Obviously I am sure weather had some negative impact on your ability to grow, I don’t if there’s any way to quantify that but as you look at 2014, what kind of organic growth do you think you guys can generate this year. I know your target is always 10%, you started out obviously below that again, weather probably had to play a role but what do you think a reasonable growth rate [indiscernible] for legacy DXP.

David Little

Yes, I always feel like I’m going to outperform the market. So with that said, maybe I should just talk about the market and we don’t -- we’re not really seeing -- certainly we had weather related issues, most like everybody else, but -- and Canada is a little soft. But we’re not seeing the general economy blooming in any form or fashion including our oil and gas segments.

So I think there is a reason why we look at interest rates and they’re staying low and GDP is being projected at 2% or something. I mean so we’re just not -- we're not seeing any inflation, we’re not seeing any big organic growth out there in terms of our customer base. The exception is I would like to maybe look at a hint of the fact or maybe the first time in couple of three years, our supply chain and service business which is really a function of -- we get a 100% of a customers' spend, so as we gauge that spend as going up of down maybe that’s telling us something and our supply chain service business is finally starting to grow, it had from the fourth quarter to first quarter had growth, nice growth and it’s continued on into April. So, maybe there is some signs there but I am not overly optimistic that our economy is healing up, I am just not and so…

Mac McConnell

David it’s not the question of right or wrong but then -- and so then I think we’re always going to do 1% or 2% better than the economy -- so you tell me what the growth numbers' been.

Matt Duncan - Stephens, Inc.

So it sounds like maybe on the service center side you’re looking at call it 3% or 6% somewhere depending on the economy but IPS, it obviously, it’s also a good start at 14% organic growth. So maybe that piece continues to do well.

Okay, and then a couple quick numbers questions and I’ll hop back in the queue. Mac was there anything one-time in nature that you can call out sort of to aggregate any kind of one-time stuff in SG&A? Was there anything in there that isn’t going to recur in the second quarter going forward?

Mac McConnell

Not in the first quarter compared to first quarter calculation.

Matt Duncan - Stephens, Inc.

Okay, and then on the tax rate last year it was 36.5% give or take and it was 38.6 in the first quarter, why that jump and what tax ratio we’ll be modelling for the year?

Mac McConnell

I think the first quarter 2014 tax rate is our best estimate of the tax rate for the year pending some acquisition that might change it. One of the reasons the tax rates over last year is the $2.8 million Natpro earn out is treated as a permanent difference for tax purposes and book purposes and so it lowered the tax rate.

Operator

Your next question comes from Joe Mondillo with Sidoti. Please go ahead.

Joe Mondillo - Sidoti & Co.

I have a few questions on B27, just trying to get a sort of an idea of what we’re looking at in terms of improvement throughout the year I guess. Has there even been any sort of improvement at the backlog of that business and are you -- can you see or do you have any visibility of improving demand for say, the back half of the year?

Mac McConnell

We’ll break down the business in three areas, one is sort of the manufacturing piece, the distribution piece and then there are integrated flow solutions piece. The backlog is increasing nicely in mid-stream which is viewing their manufacturing piece to increase backlog. The distribution piece is kind of flat at best and so the backlog there is not growing. And then IFS, the backlog is declining significantly.

Joe Mondillo - Sidoti & Co.

So it’s declined throughout the first quarter, so putting all those pieces together, backlog improving at the pump business flattish at distribution declining significantly integrated flow, are we sort of looking at sort of maybe a flattish business going into the second half of the year, is that fair to say?

Mac McConnell

I think we’re...

Joe Mondillo - Sidoti & Co.

From what you saw in the first quarter...

Mac McConnell

We’re going to see some improvement in volume and profitability from the first quarter. We’re not going to see significant improvement. We’re going to see some improvement.

Joe Mondillo - Sidoti & Co.

Okay. And integrated flow solution, can you just give us some more color and idea what’s going on there per se and what the biggest drivers to that business are?

Mac McConnell

Well, there probably there -- I guess we saw what their order size being over $1 million and so they do these projects that normally you see a lot of orders awarded, starting in December and January because of things people want to get accomplished before the end of the year. So to go through December, January, February, March, April, with sub-standard orders is just not good. And now the reason -- so we have an order sales problem and frankly that’s all, that's the only problem we have, it’s still a great business, we may all be laughing about this in 2015, but it’s not very plenty right now.

Joe Mondillo - Sidoti & Co.

So it sounds like, is it fair to say that a large part of the weakness is on the international side of the business? It seems like a lot of the growth that business saw in ’13 came from international. You put out a slide presentation in December regarding B27, international made up 8% in 2012 in that slide presentation but you’re saying it’s about 30% in 2013, so is that just maybe not going to come back possibly and domestically things continue to stay strong, so maybe that business is really 120 million, 140 million sales type of a business or just help us understand the last couple of years from what your vantage point is with that business?

Mac McConnell

Well, first of all, the API-610 manufacturing piece of the business, they’ve opened up a sales office in Dubai and so mid-market the pipeline market, they’ve grown that business and they’ve grown it internationally as well as domestically. So the international piece for that piece of the significant is growing.

IFS has always had a bigger layer of international business, they have domestic business too. So I think when we look at a shift of what really happened in 2013 is where we’re coming up with the 30% of the business being international. We like the international market we’ve wanted to play; our own IPS group would like to play in the international market to a greater extent than we have.

As we get into it, we are running resistance to these countries that are trying to employ their own people, so they’re getting stronger and stronger around content being inside of their country. And so we’re having to address that but we are addressing that, it’s not impossible to address that. The problem in addressing it is that it’s causing everybody’s cost to go up and so now we’ve got a higher cost for these projects because they’re insisting upon local content. And that’s causing some of the economics of diesel and gas plays to not be as favorable so people are sort of rethinking some of that.

And that’s the reason for the fact that we’re not losing any order but we’re not getting any orders even. So this will sort itself out over time, these countries need the production and need the oil and gas income. So we will get there. But let’s just say it was a pretty big surprise that we would go this long period of time without getting ex-amount of orders during this time period and then of course we have a fixed cost in [indiscernible] and other parts of the world to produce these things, so then as we don’t have the throughput, our profits get hammered pretty bad.

Joe Mondillo - Sidoti & Co.

Right, okay. And a couple other just quick questions on B27. That integrated flow solutions business, what kind of lead times is that business or what kind of visibility do you see with that?

Mac McConnell

Well, again like IPS we have long-term visibility but if we get an order today, we start doing the engineering on the project and we have progress billings and we have things that allow us to apply percentage of completions, so we can start, when you start capturing income, give me a $40 million order today and I am going to be a happy camper and probably singing a different song.

Joe Mondillo - Sidoti & Co.

Okay. And then just lastly with B27, Mac, can you give me the sales from B27 that hit in service centers and also in IPS just to break that out?

David Little

IPS sales, their total sales were 30,425,000, in the service centers it was 5,621,000 and IPS 24,804,000.

Joe Mondillo - Sidoti & Co.

Okay, great. And David, I was -- last question and I will hop back out. The traditional legacy IPS business, can you update us on the offshore market? I know that’s been sort of a lingering opportunity, but it’s been sort of being pushed out. Any update, possible update maybe hopefully regarding that?

David Little

Yes, actually it’s kind of -- that’s really a good question. Our goal in facility up in the Bakken and Niobrara is actually kind of flattened out of bit. Their growth is going to be pretty modest this year and but the growth in the Gulf is starting to pick up and so we feel really good about our overall IPS business. And it’s a great point that it does look like some things in the Gulf are getting turn lose and we feel good about it.

Operator

(Operator Instructions) And your next question comes from Holden Lewis with BB&T. Please go ahead.

Holden Lewis - BB&T Capital Markets

Great, thank you. And perhaps shifting to lesser issues and the MRO business, I guess I have a couple of questions on that, but perhaps first starting, how come the margin was down as much as it was on a year-over-year and sequential basis? It just seems like that that was much lower than it should have been.

David Little

Yes, that’s a good question and the answer to that is a couple fold, one is our safety services business is down. Actually it’s our only division that’s down everybody else is up and doing rather nicely. Unfortunately the safety services business has the highest gross margin, margins of anything we do and so it’s a little soft in Canada and then it’s also soft in the United States because we have pretty significant customer that decided that they didn’t need safety people on their work over rigs and that gave us a little bit of a bump in the quarter. That said, the drilling count in the United States is on the rise and so we feel pretty good about our ability to replace that business and so demand of our people is pretty high and so we see that being just a really a temporary bump. Canada is a little different; we see the drilling count there being down and a little softer. The business is still okay, but our results are not quite as strong as they were last year.

Holden Lewis - BB&T Capital Markets

That’s one, and you said there are a couple of facets to that.

David Little

Well just Canada versus the United States are two different scenarios, but both them are leading to the fact that the safety services business is down and so therefore our margins, because of such a high gross margin business, our margins are down.

Holden Lewis - BB&T Capital Markets

Got it, okay. And then I guess if you sort of strip out the IPS business and just look at your sort of industrial businesses, the MRO and the integrated supply businesses. When I look over the last few quarters and I adjust for the number of days and all that, I mean it’s a pretty sluggish performance and I know the economy has obviously been sluggish. But with all of the investments that you’ve been putting into this business, training, service centers, our super centers all those stuff, I guess I’m sort of curious, I mean when you sort of look back, do you feel that you’re getting the return on the investments out of those two segments that you already anticipated, because it feels like if those investments were paying off that you should be exceeding sort of the market growth, but I guess it’s not obvious to me that that’s been the case over the past five quarters.

David Little

Well frankly I couldn’t agree more with you, your statement’s accurate. We’re not getting the return on the investments that we’ve been making. I think we feel that they’re good long term investments and that we’ll get a return on them someday, but I think if you were to look at Q4 and then now Q1, that the results are saying that we’re growing sales 1 or 2% and that the bottom line is negative. And so that’s not a top line, bottom line growth scenario that you expect and what I expect and so I’m not happy about that.

Holden Lewis - BB&T Capital Markets

So what goes wrong with those investments? That basically means you’re making them and they’re kind of performing in line with the market as a whole. How have we not gotten premium growth from those investments? Have we identified kind of what to fix there?

David Little

It’s always a people investment, for hiring a salesman, to get him to come we're guaranteeing him a $100,000 and of course he’s not bringing a $100,000 worth of business with him, and so he has to grow his way out of that guarantee and it doesn’t happen as fast as we would like or the employee would like. I mean he's made an investment in us also so I’m not picking on him, but -- and so we have a lot of super centers that are in process, but we also all across our company we’re hiring salesmen and people like that to cross sell products, so we’re, you know we might not be calling this a super center in process, we were still hiring other people to grow and cross sell and do the things that we do to grow our business and capture more of the MRO pocketbook of each customer and in a slow growth environment, we found this to be the case too in 2009 we just -- we can’t overcome the fact that everybody else is working really hard to maintain the business that they’ve got and so it’s just hard on us.

Holden Lewis - BB&T Capital Markets

Okay and then I guess the last thing on this matter is, so you’ve sort of indicated that you’re probably going to set aside the growth objective in favor of ramping productivity, fixing the acquisitions, those sorts of things. But I believe that your sales force has a pretty meaningful incentive for growth. So, how do you sort of have the brakes on growth in the near term and keep your sales force product engaged and happy at a time when you need them to sort of firm things up, become more productive, when they’re largely incented on the growth that you’re opting to sort of stall for the time being. How do you envisage keeping sales force engaged in that scenario?

Mac McConnell

Holden you always ask good questions, that’s an excellent question and we’re not trying to reduce head count, so maybe ought be perfectly clear about that, so we’re not trying to reduce our ability to have people go out and try individually to develop relationships and grow the customer and to try to capture more of his pocket book, so we’re not disincentivizing him to do that, but I’m also not willing to go out and hire 20 new salesmen tomorrow either, and so that's really the investments, kind of a forward investment that we’re going to slow down than the present one. We expect, how many people we have, 4,000 people to go out and be customer driven and to try to capture more market share every day and we’re still going to do that, we’re just not -- we're just going to slow down the fact that, I don’t know how many people we hired this year, but I bet you it’s already in the hundreds, so it’s what we're doing going forward.

Operator

And there are no further questions ladies and gentlemen, this does conclude the conference call for today, thank you for participating, please disconnect your line.

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