DXP ENTERPRISES INC

The industrial distribution market is highly fragmented. Based on 2024 sales as reported by Industrial Distribution magazine, DXP Enterprises was the 17th largest distributor of MRO products in the U.S. ¹. Most industrial customers currently purchase their industrial supplies through numerous local distribution and supply companies. Three primary trends have emerged in the industrial supply industry: industry consolidation, customized integrated service, and single source, first-tier distribution. The Company believes it has increased its competitive advantage through its traditional fabrication of integrated system pump packages and integrated supply programs, which are designed to address customers’ specific product and procurement needs.

DXP Enterprises competes with a variety of industrial supply distributors, some of which may have greater financial and other resources than the Company. Some competitors are small enterprises selling to customers in a limited geographic area, while others include catalog distributors, large warehouse stores, and, to a lesser extent, manufacturers. The Company generally competes on expertise, responsiveness, and pricing in all of its segments. The Company believes it has increased its competitive advantage through its traditional fabrication of integrated system pump packages and integrated supply programs.

The Company generates revenue by distributing maintenance, repair and operating (MRO) products, equipment and service to customers in a variety of end markets including the general industrial, energy, food & beverage, chemical, transportation, water and wastewater. Over 90% of the Company's business relates to sales of products, while service revenues are less than 10% of sales ². The Company is organized into three business segments: Service Centers (SC), Innovative Pumping Solutions (IPS) and Supply Chain Services (SCS). A majority of SC segment sales are derived from customer purchase orders for products. Sales of integrated custom pump packages, remanufactured pumps, and branded private label pumps are generally derived from customer purchase orders containing the customers’ unique specifications. The SCS segment enters into long-term contracts with customers that can be canceled on little or no notice under certain circumstances.

The Service Centers segment is engaged in providing MRO products, equipment and services, including technical expertise and logistics capabilities, to a variety of customers serving varied end markets with the ability to provide same day delivery. For the year ended December 31, 2025, SC segment sales were $1,373,140,000 ³, income from operations was $198,000,000 ⁴, and EBITDA was $207,000,000 ⁵. The SC segment had 1,945 employees as of December 31, 2025 ⁶. The SC segment serves as a first-tier distributor of more than 1,000,000 items ⁷, of which more than 60,000 are stock keeping units (SKUs) ⁸. At December 31, 2025, SC products and services were distributed from 164 service center facilities and 4 distribution centers ⁹. Approximately 5.2% of the SC segment’s revenues were in Canada ¹⁰.

The Innovative Pumping Solutions segment provides integrated custom pump skid packages, pump remanufacturing, and manufactures branded private label pumps to meet the capital equipment needs of its global customer base. For the year ended December 31, 2025, IPS segment sales were $390,291,000 ¹¹, income from operations was $70,000,000 ¹², and EBITDA was $74,000,000 ¹³. The IPS segment had 541 employees as of December 31, 2025 ¹⁴. Total backlog, representing firm orders for IPS segment products, was $325,000,000 at December 31, 2025 ¹⁵, compared to $292,200,000 at December 31, 2024 ¹⁶. The Supply Chain Services segment manages all or part of customers’ supply chains including procurement and inventory management. For the year ended December 31, 2025, SCS segment sales were $252,934,000 ¹⁷, income from operations was $22,000,000 ¹⁸, and EBITDA was $22,000,000 ¹⁹. The SCS segment had 465 employees as of December 31, 2025 ²⁰. At December 31, 2025, the SCS segment operated supply chain installations in 89 of its customers’ sites ²¹. Approximately 7.1% of SCS segment’s revenues were in Canada ²².

A key component of the Company's growth strategy includes acquiring businesses with complementary and desirable product lines, locations, or customers. Since 2004, the Company has completed 64 acquisitions ²³. In 2025, the Company completed six acquisitions for a combined total consideration of $79,200,000 ²⁴. In early 2026, the Company completed 3 acquisitions ²⁵. On August 28, 2024, the Company announced a new Share Repurchase Program pursuant to which it may repurchase up to $85,000,000 worth, or 2,500,000 shares, of the Company's outstanding common stock over the next 24 months ²⁶. As of December 31, 2025, approximately $68,000,000 worth of, or approximately 2,300,000, shares remained available under the $85,000,000 Share Repurchase Program ²⁷. During the twelve months ended December 31, 2025, the Company repurchased 0.2 million shares of the Company's common stock for approximately $17,000,000 ²⁸. On December 16, 2025, the Company amended its Senior Secured Term Loan B, raising an incremental $205,000,000 ²⁹. On July 1, 2025, the aggregate commitments under the Company's ABL Facility were increased by $50,000,000 ³⁰.

Total sales for the year ended December 31, 2025 increased $214,300,000, or 11.9%, to approximately $2,016,000,000 from $1,802,000,000 for the prior corresponding period ³¹. Gross profit as a percentage of sales for the twelve months ended December 31, 2025 increased by approximately 67 basis points from the prior year's corresponding period ³². Income from operations for the year ended December 31, 2025 increased by $31,500,000 to $176,900,000 from $145,400,000 in the prior year's corresponding period ³³. Net income for the year ended December 31, 2025 was $88,677,000 ³⁴, compared to $70,489,000 for the year ended December 31, 2024 ³⁵. Diluted earnings per share was $5.37 for the year ended December 31, 2025 ³⁶, compared to $4.22 for the year ended December 31, 2024 ³⁷. EBITDA for the year ended December 31, 2025 was $218,602,000 ³⁸, compared to $182,304,000 for the year ended December 31, 2024 ³⁹. Net cash provided by operating activities for the year ended December 31, 2025 was $94,264,000 ⁴⁰, compared to $102,211,000 for the year ended December 31, 2024 ⁴¹.

The Company expects fiscal 2026 growth to be comparable to 2025 growth metrics with the continued execution of acquisition activity, assuming a positive general macroeconomic environment and continued supportive environments in its end markets ⁴². The Company expects its interest expense in 2026 to be relatively higher than the amounts incurred in 2025 due to incremental financing activities, but mitigated by proactively securing favorable terms to reduce overall borrowing costs ⁴³. The Company expects to generate sufficient cash from operations and have sufficient capacity under its ABL credit facility to fund any working capital, capital expenditures, share repurchases, and debt payments in 2026 ⁴⁴.

The Company's sales growth strategy in recent years has focused on internal growth and acquisitions. Key elements of the sales strategy include leveraging existing customer relationships by cross-selling new products, expanding product offerings to new and existing customers, and increasing business-to-business solutions using system agreements and supply chain solutions for integrated supply customers. The Company will continue to review opportunities to grow through the acquisition of distributors and other businesses that would expand its geographic reach and/or add additional products and services. The Company's results will depend on its success in executing its internal growth strategy and, to the extent it completes any acquisitions, its ability to integrate such acquisitions effectively.

The Company's strategies to increase productivity include consolidated purchasing programs, centralizing product distribution, customer service and inside sales functions, and using information technology to increase employee productivity. The Company will seek to improve its working capital utilization, with a particular focus on improving the management of accounts receivable, inventory and cost in excess of billings. In 2026, the Company's cash flows for investing activities will be focused on strategic initiatives, information technology software and infrastructure, general upgrades and cost reduction opportunities.

The Company expects to continue to return excess capital to shareholders through share repurchases, when appropriate. The Company's capital expenditures were $40,300,000 for the year ended December 31, 2025 ⁴⁵, compared to $25,100,000 for the year ended December 31, 2024 ⁴⁶. The Company expects to continue to invest in the business including capital expenditures, strategic acquisitions and investments, paying interest and servicing debt, repurchasing common stock when deemed appropriate, and managing its capital structure on a short-term and long-term basis.

The continued disruption in economic markets due to inflation, changing interest rates, tariffs, trade disputes, business interruptions due to natural disasters and changes in weather patterns, employee shortages, and supply chain issues, all pose challenges which may adversely affect the Company's future performance. The Company cannot reasonably estimate whether its strategies will help mitigate the impact of these economic disruptors in the future. The severity, magnitude and duration of certain economic trends continue to be uncertain and are difficult to predict, and the Company cannot reasonably estimate the full future impacts of these matters at this time.

The Company's sales volume is expected to deliver sustainable and healthy growth, while its diversification efforts have unlocked gains in margins, cash flow and overall organizational efficiency. With its strong backlog and improved market environment, the Company expects to continue to see growth in 2026. The Company has seen growth from its supportive served end-markets and its focus on organic and inorganic sales growth.

Demand for the Company's products could decrease if manufacturers sell them directly to end users, as most distribution authorizations are subject to cancellation by the manufacturer, some upon little or no notice. Material changes in the costs of products from manufacturers without the ability to pass price increases onto customers could cause gross and operating margins to decline. The Company's future results will be impacted by the effective execution of its acquisition strategy, which involves special risks including possible adverse effects on operating results, diversion of management’s attention, failure to retain key personnel, and difficulties in integrating operations. Goodwill and intangible assets recorded as a result of acquisitions could become impaired; at December 31, 2025, combined goodwill and intangible assets amounted to $575,900,000 ⁴⁷, net of accumulated amortization. A deterioration in the oil and gas sector or other circumstances may negatively impact the Company's business and hinder its ability to comply with financial covenants under its credit facilities, including the Secured Leverage Ratio and Fixed Charge Coverage Ratio financial covenants. As of December 31, 2025, the Company's Secured Leverage Ratio was 2.25 to 1.00 ⁴⁸ and its Fixed Charge Coverage Ratio was 2.12 to 1.00 ⁴⁹.

Management's message emphasizes that the Company has seen growth from its supportive served end-markets and its focus on organic and inorganic sales growth. The Company's sales volume is expected to deliver sustainable and healthy growth, while its diversification efforts have unlocked gains in margins, cash flow and overall organizational efficiency. With its strong backlog and improved market environment, the Company expects to continue to see growth in 2026. Assuming a positive general macroeconomic environment and continued supportive environments in its end markets, the Company expects fiscal 2026 growth to be comparable to 2025 growth metrics with the continued execution of acquisition activity ⁵⁰. The Company expects its interest expense in 2026 to be relatively higher than the amounts incurred in 2025 due to incremental financing activities, but mitigated by proactively securing favorable terms to reduce overall borrowing costs ⁵¹. The Company expects to generate sufficient cash from operations and have sufficient capacity under its ABL credit facility to fund any working capital, capital expenditures, share repurchases, and debt payments in 2026 ⁵².