DXP ENTERPRISES INC

The Company regularly claims federal income tax credits for the research activities it conducts related to its manufacturing activities. The Company has recognized a total of $37.0 million as of the third quarter of 2025 in federal income tax credits for the research activities from 2015 thru 2025. The Internal Revenue Service (“IRS”) is conducting an examination of the Company’s U.S. federal income tax returns for its 2018 tax year. The Company received Notices of Proposed Adjustment in October 2024, which if sustained, would result in a loss of federal income tax credits for research activities claimed by the Company during that tax year. The Company intends to vigorously defend its reported positions. The Company has currently accrued a reserve relating to the potential tax adjustments. However, the outcome of this dispute involves a number of uncertainties, including those relating to the application of the Internal Revenue Code and other federal income tax authorities and judicial precedent. Accordingly, there can be no assurance that the dispute with the IRS will be resolved favorably. If the IRS materially reduces or disallows our federal income tax credits for research activities, it may have a material adverse effect on our business and financial condition.

Other than the risk factors noted above, there have been no other changes to the risk factors as previously disclosed in “Part I. Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year end December 31, 2024.