DXP ENTERPRISES INC

NOTE 10 -INCOME TAXES

The components of income before income taxes are as follows (in thousands):

The provision for income taxes consisted of the following (in thousands):

The following table shows the principal reasons for the difference between the effective income tax rate and the statutory federal income tax rate:

Deferred tax liabilities and assets were comprised of the following(in thousands):

The Company records a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. If the Company was to determine that it would be able to realize the deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the valuation allowance, which would reduce the provision for income taxes. As of December 31, 2025, the valuation allowance primarily relates to state operating loss and foreign capital loss carryforwards.

The following summarizes changes in the balance of valuation allowances on deferred tax assets(in thousands):

Expected tax benefit on carryforwards available for use on future income tax returns, prior to valuation allowance, at December 31, 2025, are as follows(in thousands):

Changes in the balance of unrecognized tax benefits excluding interest and penalties on uncertain tax positions are as follows(in thousands):

As of December 31, 2025, the Company had recorded a total tax benefit of $34.9 million related to federal and state research and development tax credits. This benefit is partially offset by $6.1 million uncertain tax position due to the uncertainty related to the realizability of the federal research and development tax credits. The Company is also recording a $0.5 million uncertain tax position resulting from a method change for a historical acquisition and non-deductible auto expense compensation. The total amount of these unrecognized tax benefits, if recognized, would impact the effective tax rate.

To the extent penalties and interest would be assessed on any underpayment of income tax, such accrued amounts are classified as a component of income tax provision (benefit) in the consolidated financial statements consistent with the Company's policy. For the year ended December 31, 2025, the Company recorded $0.3 million tax expense for interest and penalties related to uncertain tax positions.

The Company is subject to taxation in the U.S., various states, and foreign jurisdictions. The Company has significant operations in the U.S. and Canada and to a lesser extent in various other international jurisdictions. Tax years that remain subject to examination vary by legal entity but are generally closed in the U.S. for the tax years prior to 2015 and outside the U.S. for the tax years ended prior to 2019. There is a 4-year statute of limitations for Canadian returns based on the date tax assessment is received, not filing date. Tax assessments are typically received within weeks of filing date.

Income taxes paid net of refunds are as follows (in thousands):

NOTE 11 -SHARE-BASED COMPENSATION

2016 Omnibus Incentive Plan

On June 16, 2023, our shareholders approved an amendment to the DXP Enterprises, Inc. 2016 Omnibus Incentive Plan (the “2016 Plan”) to increase the number of shares that can be issued under the 2016 Plan from 1,000,000 shares to a total of 1,250,000 shares, which represents an increase of 250,000 shares (the “Amendment”), which authorized grants of restricted stock awards, restricted stock units, performance awards, options, investment rights, and cash-based awards.

Restricted Stock Awards

The Company grants restricted stock awards (“RSAs”) to employees and non-employee directors. RSAs qualify as participating securities as each award contains non-forfeitable rights to dividends. RSAs are considered outstanding at the date of grant. Refer to Note. 12 Earnings Per Sharefor further detail.

RSAs are subject to vesting periods betweenone toten years. Compensation expense for RSAs is calculated based on the closing price of the Company’s common stock at the date of grant and recognized over the requisite vesting period on a straight-line basis. Unvested RSAs may be forfeited if employees or non-employee directors cease employment or services during the requisite vesting period. Forfeitures reduce expense at the time employment or service cease at the original grant date value. The Company issues new shares of common stock, if available, to settle vested RSAs. At December 31, 2025,316,163 shares were available for grant.

Changes in RSAs for the twelve months ended December 31, 2025 are as follows:

Changes in RSAs for the twelve months ended December 31, 2024 are as follows:

Changes in RSAs for the twelve months ended December 31, 2023 are as follows:

The following table sets forth information regarding the vesting and distribution of RSAs for the periods indicated (in thousands):

Unrecognized compensation expense under the 2016 Plan at December 31, 2025, December 31, 2024 and December 31, 2023 was $6.9 million, $7.7 million and $5.9 million, respectively. As of December 31, 2025, the weighted average period over which the unrecognized compensation expense is expected to be recognized is 1.2 years.