DXP Enterprises, Inc. (DXPE) Earnings

Management highlights

- Overall Financial Performance * Total Q2 2026 sales were $576.5 million, up 15.6% year-over-year, with 11.1% organic year-over-year sales growth; 12.2% adjusted EBITDA margin was a new company record, reaching $70.4 million * Net income increased to $28.7 million, with diluted EPS of $1.76, up from $1.43 in Q2 2025 * Free cash flow for Q2 was $29.8 million (vs. $8.3 million in Q2 2025), with first half 2026 free cash flow of $56 million, a sharp improvement from negative $8.6 million in the first half of 2025 * Total liquidity of $374.5 million as of June 30, 2026, with S&P upgrading DXP's issuer credit rating to B+ from B with a stable outlook - Strategic Growth Initiatives * Core strategy remains profitable, customer-focused growth via organic expansion and disciplined acquisitions, with a focus on technical expertise and reliable, convenient service * Secular growth drivers include demand in water and wastewater, energy infrastructure, general industry, air compression, and data centers, where DXP's technical strengths align with customer needs * Four acquisitions completed in the first half of 2026 for total consideration of $135.6 million, all aligned with expanding the water and wastewater platform and geographic reach; the Mequepco acquisition in Western Canada closed August 1, 2026, establishing a Canadian beachhead for DXP Water * A new $225 million ABL facility was secured, extending maturity to 2031 and improving financial flexibility for future growth - Operational Highlights * IPS backlog grew sequentially in Q2, with energy-related backlog up 7.3% sequentially, reversing prior declines from the second half of 2025; excluding large completed projects, backlog is up 10% quarter-over-quarter * DXP Water achieved its 15th consecutive quarter of sequential sales growth, driven by municipal infrastructure investments and regulatory requirements * Service center growth was broad-based across key regions including California, Gulf Coast, Southeast, North Texas, and South Central * Operating leverage improved as SG&A as a percentage of sales fell to 22.1% from 22.4% year-over-year, despite higher payroll and overhead costs

Guidance

Management does not provide formal quarterly or full-year numerical guidance, but shared the following forward-looking outlooks: * The strong Q2 12.2% adjusted EBITDA margin is expected to be sustainable over the long term, supported by the growing proportion of higher-margin water and wastewater sales in the IPS segment, though management does not promise the 12% level will be repeated in Q3 * Continued momentum is expected for DXP Water through the second half of 2026, building on 15 consecutive quarters of sequential growth * The strong Q2 backlog in IPS gives management confidence in sustained customer demand and durable momentum through the remainder of 2026 * DXP remains well positioned to deliver sustained growth and market outperformance, supported by its diversified end markets, resilient business model, and strong balance sheet flexibility for continued organic investment and acquisitions

Segment performance

1. Innovative Pumping Solutions (IPS): Total Q2 2026 sales reached $142.7 million, representing 52.6% year-over-year growth. Acquisitions contributed $47 million in sales, with organic sales growing 13.3% year-over-year. Segment operating income was $26.7 million, up from $18.6 million in Q2 2025. IPS contributed 24.7% of total company Q2 revenue. DXP Water, a sub-platform within IPS, grew to $97.3 million in Q2 sales, nearly doubling year-over-year, with first half 2026 sales of $175.5 million (up 85.6% year-over-year). 2. Service Centers: Total Q2 2026 sales hit $367.9 million, an 8.3% year-over-year increase. Organic sales grew $40.9 million year-over-year, with segment operating income of $54.2 million. Service Centers contributed 63.8% of total company Q2 revenue. 3. Supply Chain Services (SCS): Total Q2 2026 sales were $65.8 million, a 0.6% year-over-year increase. Segment operating income grew to $6.5 million, up from $5.2 million in Q2 2025, with improved profitability despite flat core sales. SCS contributed 11.4% of total company Q2 revenue.

Risks & headwinds

- Broad macroeconomic volatility from tariffs, inflation, high interest rates, and geopolitical uncertainty is noted as a potential headwind - Forward-looking performance is inherently uncertain, with management cautioning that actual results may differ materially from implied expectations, per standard forward-looking statement disclosures - Organic growth can be partially offset by lower activity from some existing customers, as seen in the flat performance of the supply chain services segment in Q2 - Working capital increases from sustained sales growth and acquisitions create ongoing balance sheet management requirements

Analyst Q&A

• Q: An analyst asked for Q2 2026 monthly average daily sales data, particularly for May, and an update on early Q3 sales trends. /

  A: Management provided the full monthly average daily sales breakdown for H1 2026: $7.2M/day in January, $8.4M/day in February, $9.2M/day in March, $9.1M/day in April, $9M/day in May, and $9.4M/day in June. The year-to-date average was $8.7M per day. Management did not provide additional Q3 specific data.

• Q: After DXP hit a record 12% adjusted EBITDA margin in Q2, up from the historical 11% range, the analyst asked whether 12% or 11% is more likely for Q3. /

  A: Management explained that the higher margin reflects the growing mix of higher-margin water and wastewater sales, which now make up nearly 70% of IPS segment sales. While management does not give explicit guidance, they noted that 12% margins can be sustained on a long-term basis, though this was the first quarter hitting the level, so no guarantee it will hold in Q3.

• Q: The analyst asked what drove the elevated CapEx spending DXP had in 2025, which 2026 spending has normalized from. /

  A: Management explained that 2025's higher CapEx went toward strategic growth investments, including software, facility upgrades, equipment, and tooling for DXP's private label pump manufacturing business. These investments support DXP's position as the leading rotating equipment provider in North America, and maintenance CapEx makes up a very small portion of DXP's overall capital spending.