DXP ENTERPRISES INC

Previous wording

The following management discussion and analysis ("MD&A") of the financial condition and results of operations of DXP Enterprises, Inc. together with its subsidiaries (collectively "DXP," "Company," "us," "we," or "our") for the six months ended June 30, 2026 should be read in conjunction with our previous Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q, and the consolidated financial statements and notes thereto included in such reports. The Company's consolidated financial statements are prepared in accordance with U.S. GAAP.

Current wording

The following management discussion and analysis ("MD&A") of the financial condition and results of operations of DXP Enterprises, Inc. together with its subsidiaries (collectively "DXP," "Company," "us," "we," or "our") for the nine months ended September 30, 2026 should be read in conjunction with our previous Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q, and the consolidated financial statements and notes thereto included in such reports. The Company's consolidated financial statements are prepared in accordance with U.S. GAAP.

Previous wording

The replacement and mission-critical nature of our products and services within the Company's Service Centers and Innovative Pumping Solutions business segments and industrial and manufacturing environments and processes drives a demand and outlook that are correlated with global, national and regional industrial production, capacity utilization and long-term GDP growth. For the six months ended June 30, 2026, we had approximately $967.3 million in sales in our Service Centers and Innovative Pumping Solutions segments, an increase of approximately 14.3 percent compared to the six months ended June 30, 2025. Our performance has been strengthened by our ability to maintain strong margins despite price increases from vendors and suppliers. During the six months ended June 30, 2026, $8.6 million in sales in our Service Centers (SC) segment and $82.0 million in sales in our Innovative Pumping Solutions (IPS) segment were associated with recent acquisition.

Current wording

The replacement and mission-critical nature of our products and services within the Company's Service Centers and Innovative Pumping Solutions business segments and industrial and manufacturing environments and processes drives a demand and outlook that are correlated with global, national and regional industrial production, capacity utilization and long-term GDP growth. For the nine months ended September 30, 2026, we had approximately $1.5 billion in sales in our Service Centers and Innovative Pumping Solutions segments, an increase of approximately 14.7 percent compared to the nine months ended September 30, 2025. Our performance has been strengthened by our ability to maintain strong margins despite price increases from vendors and suppliers. During the nine months ended September 30, 2026, $8.6 million in sales in our Service Centers (SC) segment and $130.8 million in sales in our Innovative Pumping Solutions (IPS) segment were associated with recent acquisitions.

Previous wording

For the six months ended June 30, 2026, we had approximately $130.8 million in sales in our Supply Chain Services (SCS) segment, an increase of approximately 1.6 percent compared to the six months ended June 30, 2025.

Current wording

For the nine months ended September 30, 2026, we had approximately $197.3 million in sales in our Supply Chain Services (SCS) segment, an increase of approximately 2.9 percent compared to the nine months ended September 30, 2025.

Previous wording

Our results of operations are not directly comparable on a year-over-year basis due to various prior acquisitions and the varying size and number of acquisitions in any comparable period. Accordingly, the results of acquisitions are included subsequent to their respective acquisition dates and the Company provides detail around Organic and Acquisition Sales as defined in our Key Business Metrics. During the six months ended June 30, 2026, acquisition sales were $90.6 million compared to $55.7 million for the six months ended June 30, 2025.

Current wording

Our results of operations are not directly comparable on a year-over-year basis due to various prior acquisitions and the varying size and number of acquisitions in any comparable period. Accordingly, the results of acquisitions are included subsequent to their respective acquisition dates and the Company provides detail around Organic and Acquisition Sales as defined in our Key Business Metrics. During the nine months ended September 30, 2026, acquisition sales were $139.4 million compared to $74.1 million for the nine months ended September 30, 2025.

Previous wording

The following tables sets forth the disaggregation of revenue from sales associated with acquisitions for the three months ended June 30, 2026 and 2025(in thousands) :

Current wording

The following table sets forth the disaggregation of revenue from sales associated with acquisitions for the three months ended September 30, 2026 and 2025(in thousands):

Previous wording

SALES. Sales for the three months ended June 30, 2026 increased $77.8 million, or 15.6 percent, to approximately $576.5 million from $498.7 million for the prior year's corresponding period, of which recent acquisitions contributed $49.8 million. Additionally, the overall increase in sales was the result of an increase in sales in our SC, IPS, and SCS segments of $28.2 million, $49.2 million, and $0.4 million, respectively. The fluctuations in sales are further explained in our business segment discussions below.

Current wording

SALES. Sales for the three months ended September 30, 2026 increased $73.5 million, or 14.3 percent, to approximately $587.2 million from $513.7 million for the prior year's corresponding period, of which recent acquisitions contributed $48.8 million. Additionally, the overall increase in sales was the result of an increase in sales in our SC, IPS, and SCS segments of $26.5 million, $43.6 million, and $3.4 million, respectively. The fluctuations in sales are further explained in our business segment discussions below.

Previous wording

Service Centers segment. Sales for the SC segment increased $28.2 million, or 8.3 percent, for the three months ended June 30, 2026, compared to the prior year's corresponding period. Excluding the impact of recent acquisitions, sales grew $40.9 million, this sales increase was the result of increases within our California, Gulf Coast, Southeast, North Texas, South Central and South Rockies regions totaling $31.9 million, offset by decreases in sales in our Southwest region. Sales from recent acquisitions contributed $2.9 million during the period, compared to $15.6 million for the three months ended June 30, 2025.

Current wording

Service Centers segment. Sales for the SC segment increased $26.5 million, or 7.6 percent, for the three months ended September 30, 2026, compared to the prior year's corresponding period. Excluding the impact of recent acquisitions, sales grew $38.1 million. The current period included no acquisition sales, compared with $11.7 million for the three months ended September 30, 2025. Additionally, sales increased due to increased volume within our California, Gulf Coast, Alaska, and North Texas regions, offset by decreases in sales in our Ohio River Valley, South Central, and Southwest regions.

Previous wording

Innovative Pumping Solutions segment. Sales for the IPS segment increased $49.2 million, or 52.6 percent, for the three months ended June 30, 2026, compared to the prior year's corresponding period. This sales increase was the result of increases within our water and wastewater division and increased production contracts totaling $11.3 million, as well as strategic acquisitions within the IPS segment. Sales from recent acquisitions contributed $47.0 million during the period, compared to $9.0 million, for the three months ended June 30, 2025.

Current wording

Innovative Pumping Solutions segment. Sales for the IPS segment increased $43.6 million, or 43.3 percent, for the three months ended September 30, 2026, compared to the prior year's corresponding period. This sales increase was the result of increases within our water and wastewater platform as well as strategic acquisitions within the IPS segment. Sales from recent acquisitions contributed $48.8 million during the period, compared to $6.7 million, for the three months ended September 30, 2025.

Previous wording

Supply Chain Services segment. Sales for the SCS segment increased by $0.4 million, or 0.6 percent, for the three months ended June 30, 2026, compared to the prior year's corresponding period. This was primarily due to the onboarding of new customers and their related facilities, partially offset by decreased activity with existing customers.

Current wording

Supply Chain Services segment. Sales for the SCS segment increased by $3.4 million, or 5.5 percent, for the three months ended September 30, 2026, compared to the prior year's corresponding period. This was primarily due to the onboarding of new customers and their related facilities as well as increased net activity with existing customers.

Previous wording

GROSS PROFIT. Gross profit margin for the six months ended June 30, 2026 was 32.0 percent compared to 31.6 percent for the prior year's corresponding period. The gross profit margin for the six months ended June 30, 2026 was positively impacted by 44 basis points due to recent acquisitions and continuing margin expansion efforts.

Current wording

GROSS PROFIT. Gross profit margin for the three months ended September 30, 2026 was 30.7 percent compared to 31.4 percent for the prior year's corresponding period. The gross profit margin for the three months ended September 30, 2026 was negatively impacted by 65 basis points primarily due to increased input costs compared to the last quarter.

Previous wording

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A"). SG&A for the three months ended June 30, 2026 increased by $15.7 million, or 14.1 percent, to $127.6 million from $111.8 million for the prior year's corresponding period. The increase in SG&A is primarily the result of increased payroll related costs, depreciation and amortization, rent, insurance, and professional fees.

Current wording

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A"). SG&A for the three months ended September 30, 2026 increased by $10.5 million, or 8.9 percent, to $128.0 million from $117.6 million for the prior year's corresponding period. The increase in SG&A is primarily the result of increased payroll related costs, depreciation and amortization, rent, insurance, and professional fees.

Previous wording

INTEREST EXPENSE. Interest expense for the second quarter of 2026 increased $2.1 million compared to the prior year's corresponding period. This increase was primarily due to the Company refinancing its Term Loan B during the fourth quarter of 2025.

Current wording

INTEREST EXPENSE. Interest expense for the third quarter of 2026 increased $2.1 million compared to the prior year's corresponding period. This increase was primarily due to the Company refinancing its Term Loan B during the fourth quarter of 2025.

Previous wording

INCOME TAXES. Our effective tax rate for continuing operations was 27.7 percent for the three months ended June 30, 2026, compared to 25.3 percent for the three months ended June 30, 2025. Compared to the U.S. statutory rate for the three months ended June 30, 2025, the effective tax rate increased primarily due to discrete items, including updates to the tax reserves, which reflect our ongoing assessment of uncertain tax positions, including research and development tax credits for which we believe our position is supportable and intend to dispute any proposed IRS adjustments, a decrease in tax benefits related to stock-based compensation vested during the period, net of amounts limited by Section 162(m), and an increase in non-deductible expenses.

Current wording

INCOME TAXES. Our effective tax rate for continuing operations was 26.3 percent for the three months ended September 30, 2026, compared to 26.6 percent for the three months ended September 30, 2025. Compared to the U.S. statutory rate for the three months ended September 30, 2025, The effective tax rate for the three months ended September 30, 2026, decreased compared to the same period in 2025, primarily due to discrete tax benefits associated with a reduction in the reserve for prior-year research and development tax credits and related accrued interest, partially offset by lower tax benefits from stock-based compensation vesting during the period, net of limitations under Section 162(m).

Previous wording

The following tables sets forth the disaggregation of revenue from sales associated with acquisitions for the six months ended June 30, 2026 and 2025(in thousands) :

Current wording

The following table sets forth the disaggregation of revenue from sales associated with acquisitions for the nine months ended September 30, 2026 and 2025(in thousands):

Previous wording

SALES. Sales for the six months ended June 30, 2026 increased $122.9 million, or 12.6 percent, to approximately $1.1 billion from $1.0 billion for the prior year's corresponding period, of which recent acquisitions contributed $90.6 million during the year. Additionally, the overall increase in sales was the result of an overall increase in sales within our SC, IPS, and SCS segments of $39.1 million, $81.7 million, and $2.1 million. The fluctuations in sales are further explained in our business segment discussions below.

Current wording

SALES. Sales for the nine months ended September 30, 2026 increased $196.3 million, or 13.2 percent, to approximately $1.7 billion from $1.5 billion for the prior year's corresponding period, of which recent acquisitions contributed $139.4 million during the year. Additionally, the overall increase in sales was the result of an overall increase in sales within our SC, IPS, and SCS segments of $65.5 million, $125.2 million, and $5.6 million. The fluctuations in sales are further explained in our business segment discussions below.

Previous wording

Service Centers segment. Sales for the SC segment increased by $39.1 million, or 5.9 percent for the six months ended June 30, 2026, compared to the prior year's corresponding period. Sales from recent acquisitions for the SC segment contributed $8.6 million during the period as compared to $33.5 million during the six months ended June 30, 2025. Total sales for the SC segment excluding acquisitions increased $64.0 million from the prior year's corresponding period. This sales increase was primarily the result of increased business activity within the majority of our regions, offset by a decrease in project-related work compared to the prior year's corresponding period.

Current wording

Service Centers segment. Sales for the SC segment increased by $65.5 million, or 6.4 percent for the nine months ended September 30, 2026, compared to the prior year's corresponding period. Sales from recent acquisitions for the SC segment contributed $8.6 million during the period as compared to $45.2 million during the nine months ended September 30, 2025. Total sales for the SC segment excluding acquisitions increased $102.1 million from the prior year's corresponding period. This sales increase was primarily the result of increased business activity within the majority of our regions.

Previous wording

Innovative Pumping Solutions segment. Sales for the IPS segment increased by $81.7 million, or 45.4 percent for the six months ended June 30, 2026 compared to the prior year's corresponding period. Sales from acquisitions for the IPS segment contributed $82.0 million during the period compared to $22.2 million during the six months ended June 30, 2025. Excluding the impact of recent acquisitions, sales increased within our water and wastewater end market, due to the increased projects compared to the prior year's corresponding period.

Current wording

Innovative Pumping Solutions segment. Sales for the IPS segment increased by $125.2 million, or 44.7 percent for the nine months ended September 30, 2026 compared to the prior year's corresponding period. Sales from recent acquisitions for the IPS segment contributed $130.8 million during the period compared to $29.0 million during the nine months ended September 30, 2025. Excluding the impact of recent acquisitions, sales increased within our water and wastewater end market, due to the increased projects compared to the prior year's corresponding period.

Previous wording

Supply Chain Services segment. Sales for the SCS segment increased by $2.1 million, or 1.6 percent, for the six months ended June 30, 2026, compared to the prior year's corresponding period.

Current wording

Supply Chain Services segment. Sales for the SCS segment increased by $5.6 million, or 2.9 percent, for the nine months ended September 30, 2026, compared to the prior year's corresponding period. This was primarily due to the onboarding of new customers and their related facilities as well as increased net activity with existing customers.

Previous wording

GROSS PROFIT. Gross profit margin for the three months ended June 30, 2026 was 31.8 percent compared to 31.6 percent for the prior year's corresponding period. The gross profit margin for the three months ended June 30, 2026 was positively impacted by 11 basis points due to recent acquisitions and continuing margin expansion efforts.

Current wording

GROSS PROFIT. Gross profit margin for the nine months ended September 30, 2026 was 31.6 percent compared to 31.5 percent for the prior year's corresponding period. The gross profit margin for the nine months ended September 30, 2026 was positively impacted by 6 basis points due to recent acquisitions and continuing margin expansion efforts.

Previous wording

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A"). SG&A for the six months ended June 30, 2026 increased by approximately $32.1 million, or 14.5 percent, to $253.7 million from $221.6 million for the prior year's corresponding period. The increase in SG&A is primarily the result of increased payroll related costs, depreciation and amortization, rent, insurance, and professional fees.

Current wording

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A"). SG&A for the nine months ended September 30, 2026 increased by approximately $42.6 million, or 12.6 percent, to $381.8 million from $339.1 million for the prior year's corresponding period. The increase in SG&A is primarily the result of increased payroll related costs, depreciation and amortization, rent, insurance, and professional fees.

Previous wording

OPERATING INCOME. Operating income for the six months ended June 30, 2026 increased by $11.5 million or 13.3 percent to $98.0 million from $86.5 million in the prior year's corresponding period. This increase in operating income was primarily driven by increases in our SC, IPS, and SCS segments.

Current wording

OPERATING INCOME. Operating income for the nine months ended September 30, 2026 increased by $20.2 million or 15.5 percent to $150.4 million from $130.2 million in the prior year's corresponding period.

Previous wording

INTEREST EXPENSE. Interest expense for the six months ended June 30, 2026 increased $3.9 million compared with the prior year's corresponding period. This increase was primarily due to the Company refinancing its Term Loan B during the fourth quarter of 2025.

Current wording

INTEREST EXPENSE. Interest expense for the nine months ended September 30, 2026 increased $5.9 million compared with the prior year's corresponding period. This increase was primarily due to the Company refinancing its Term Loan B during the fourth quarter of 2025.

Previous wording

As of June 30, 2026, we had available cash of $226.6 million and credit facility availability of $147.9 million. We have a $185.0 million asset-backed line of credit (the "ABL Revolver"), partially offset by letters of credit of $37.1 million. We had no borrowings outstanding on our ABL Revolver as of June 30, 2026.

Current wording

As of September 30, 2026, we had available cash of $218.8 million and credit facility availability of $192.2 million. We have a $225.0 million asset-backed line of credit (the "ABL Revolver"), offset by letters of credit of $32.8 million. We had no borrowings outstanding on our ABL Revolver as of September 30, 2026.

Previous wording

The Company generated $62.0 million of cash from operating activities during the six months ended June 30, 2026 compared to $21.6 million of cash generated during the prior year's corresponding period. The increase of $40.3 million was primarily due to higher net income during the period and a reduction in tax payments compared to the prior corresponding period.

Current wording

The Company generated $80.6 million of cash from operating activities during the nine months ended September 30, 2026 compared to $56.5 million of cash generated during the prior year's corresponding period. The increase of $24.1 million was primarily due to higher net income during the period and a reduction in tax payments compared to the prior corresponding period.

Previous wording

For the six months ended June 30, 2026, net cash used in investing activities was $118.3 million compared to a $41.4 million use of cash during the prior year’s corresponding period. This $76.9 million increase was primarily driven by increased acquisition activity during the six months ended June 30, 2026. Total consideration, net of cash acquired, was $112.9 million, compared to $13.9 million for the six months ended June 30, 2025.

Current wording

For the nine months ended September 30, 2026, net cash used in investing activities was $135.8 million compared to a $58.7 million use of cash during the prior year’s corresponding period. This $77.0 million increase was primarily driven by increased acquisition activity during the nine months ended September 30, 2026. Total consideration, net of cash acquired, was $126.2 million, compared to $24.4 million for the nine months ended September 30, 2025.

Previous wording

For the six months ended June 30, 2026, net cash used in financing activities was $19.0 million, compared to net cash used in financing activities of $16.6 million during the prior year’s corresponding period. The increase was primarily due to increases in shares withheld for taxes relating to shares vesting compared to prior corresponding period and increased principal debt repayments.

Current wording

For the nine months ended September 30, 2026, net cash used in financing activities was $28.2 million, compared to net cash used in financing activities of $23.2 million during the prior year’s corresponding period. The increase was primarily due to increased principal debt payments during the year.

Previous wording

At June 30, 2026, our total outstanding debt was $842.5 million, or 60.9 percent of total capitalization (total debt plus shareholders' equity) of $1.4 billion. $841.6 million of this outstanding debt bears interest at various floating rates. For a further discussion of the Company's debt refer to Note 8. Long-Term Debt.

Current wording

At September 30, 2026, our total outstanding debt was $839.5 million, or 59.5 percent of total capitalization (total debt plus shareholders' equity) of $1.4 billion. This debt bears interest at various floating rates. For a further discussion of the Company's debt refer to Note 8. Long-Term Debt.

Previous wording

The following table summarizes the amount of borrowing capacity under our ABL Revolver as follows (in thousands):

Current wording

The following table summarizes the amount of borrowing capacity under our ABL Revolver (in thousands):

Previous wording

At June 30, 2026, the Company had $374.5 million of liquidity including $226.6 million in cash and $147.9 million in availability under the ABL Revolver.

Current wording

At September 30, 2026, the Company had $411.0 million of liquidity including $218.8 million in cash and $192.2 million in availability under the ABL Revolver.

Previous wording

On July 2, 2026, the Company entered into a Second Amended and Restated Loan and Security Agreement (the “Second A&R Credit Agreement”). The ABL Credit Agreement provides for asset-based revolving loans (the “ABL Loans”) in an aggregate principal amount of up to $225.0 million. The ABL Facility may be increased by up to an aggregate of $50.0 million, in minimum increments of $10.0 million. The ABL Credit Agreement amends and restates the Amended and Restated Loan and Security Agreement dated as of July 19, 2022. The ABL Facility will mature on July 2, 2031. For further discussion refer to Note 17. Subsequent Events.

Current wording

On July 2, 2026, the Company entered into a Second Amended and Restated Loan and Security Agreement (the “Second A&R Credit Agreement”). The Second A&R Credit Agreement provides for asset-based revolving loans (the “ABL Loans”) in an aggregate principal amount of up to $225.0 million. The ABL Facility may be increased by up to an aggregate of $50.0 million, in minimum increments of $10.0 million. The Second A&R Credit Agreement amends and restates the Amended and Restated Loan and Security Agreement dated as of July 19, 2022. The ABL Facility will mature on July 2, 2031.

Previous wording

We monitor net working capital, which excludes cash and restricted cash, short-term debt obligations, and short-term operating leases. Net working capital as of June 30, 2026 was $393.3 million, an increase of $31.7 million, compared to $361.7 million as of December 31, 2025. The increase was primarily due to sustained sales growth and acquisitions.

Current wording

We monitor net working capital, which excludes cash and restricted cash, short-term debt obligations, and short-term operating leases. Net working capital as of September 30, 2026 was $420.9 million, an increase of $59.2 million, compared to $361.7 million as of December 31, 2025. The increase was primarily due to sustained sales growth and acquisitions.

Previous wording

For a discussion of the Company’s acquisitions refer to Note 12. Business Acquisitions. During June 30, 2026 and 2025, the Company invested $112.9 million and $13.9 million, respectively, in acquisitions.

Current wording

For a discussion of the Company’s acquisitions refer to Note 12. Business Acquisitions. During the nine months ended September 30, 2026 and 2025, the Company invested $126.2 million and $24.4 million, respectively, in acquisitions.

Previous wording

The Company's capital expenditures was $5.9 million and $30.3 million for the six months ended June 30, 2026 and 2025 respectively. This includes continued facility upgrades and enhancements, tools and equipment, and enhancements across the Company.

Current wording

The Company's capital expenditures was $10.2 million and $37.0 million for the nine months ended September 30, 2026 and 2025 respectively. This includes continued facility upgrades and enhancements, tools and equipment, and enhancements across the Company.

Previous wording

The Company's unaudited condensed financial statements are prepared in accordance with U.S. GAAP. The accompanying unaudited Condensed Consolidated Financial Statements have been prepared on substantially the same basis as our annual Consolidated Financial Statements and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2025. For a more complete discussion of our significant accounting policies and business practices, refer to the consolidated Annual Report on Form 10-K filed with the SEC on February 26, 2026. The results of operations for the six months ended June 30, 2026 are not necessarily indicative of results expected for the full fiscal year.

Current wording

The Company's unaudited condensed financial statements are prepared in accordance with U.S. GAAP. The accompanying unaudited Condensed Consolidated Financial Statements have been prepared on substantially the same basis as our annual Consolidated Financial Statements and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2025. For a more complete discussion of our significant accounting policies and business practices, refer to the consolidated Annual Report on Form 10-K filed with the SEC on February 26, 2026. The results of operations for the nine months ended September 30, 2026 are not necessarily indicative of results expected for the full fiscal year.