DXP Enterprises Inc 2026 Q2 Earnings Call

This is Kent Yee, and welcome to DXP's Q2 2026 conference call to discuss our results for the second quarter ending June 30, 2026. Joining me today is our Chief Operating Officer, Nick Little. Our Chairman and CEO, David Little, is traveling, and so we will be kind of going forward from that fashion today. Before we get started, I want to remind you that today's call is being webcast and recorded and includes forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis are contained in our SEC filings. DXP assumes no obligation to update that information because of new information or future events. During this call, we may present both GAAP and non-GAAP financial measures.

A reconciliation of GAAP to non-GAAP measures is included in our earnings press release. The press release and an accompanying investor presentation are now available on our website at ir.dxpe.com. I will now turn the call over to Nick Little, our Chief Operating Officer, to provide his thoughts and a summary of our second quarter financial results.

Nick? Good morning, and thank you, Kent.

Like Kent said, I'm filling in for David Little, who is having technical difficulties while traveling. I also want to thank everyone for joining us today on DXP's fiscal 2026 second quarter call. We had a very strong second quarter, and I'm proud of how our DXP people performed. We delivered strong year-over-year and sequential sales growth, expanded profitability, and generated quarterly adjusted EBITDA. More importantly, we did it by staying close to our customers, solving real problems in the field, and continuing to build momentum across the business. Let me start by saying that Q2 was a strong example of what happens when our DXP people stay close to customers, execute locally, and bring technical expertise to our customers.

We grew sales, improved productivity, generated significant free cash flow, and continued to advance our strategy of being customer-driven experts, technical, reliable, fast, and convenient for our customers. We are pleased to see DXP's performance continue throughout Q2 and remain at record levels through the first half of 2026. This allowed us to achieve strong sales growth and 12% EBITDA margins. Thank you to our 3,510 DXP people for your hard work and dedication. We welcome our new acquisitions, as well as all the new DXP people. DXP continues to invest in and hire for growth. Total DXP sales for the second quarter were $576.5 million, up 15.6% year over year. Organic sales increased 11.1% year over year, continuing to show the underlying strength of the business. Our acquisitions are contributing, but our existing teams and branches are also winning with customers. Profitability also improved. Gross profit margin was 31.8%.

Income from operations increased to $55.5 million. Adjusted EBITDA was $70.4 million or 12.2% of sales. Net income increased to $28.7 million. Diluted EPS was $1.76 compared with $1.43 in the second quarter of 2025. Those are strong results. I want to be clear that they start with our DXP people taking care of customers. A special thanks goes to our sales professionals, operations teams, branch leaders, service technicians, engineers, supply chain teams, and corporate support teams. DXP works because of DXP people you can trust. Our customers rely on us to solve problems quickly and provide technical solutions, keeping their operations running, and making doing business with DXP fast and convenient. That's what being customer-driven experts means. From a growth standpoint, we continue to like where DXP's positioned.

Customers in water and wastewater, energy infrastructure, general industry, air compression, data centers, and other technical markets need reliability, responsiveness, and expertise. Those are DXP's strengths. They create opportunities for us to earn more of the customer's business and drive revenue and margin share. Across DXP, growth is coming from several consistent themes: expanding our technical and engineering solutions, broadening solutions around pumps, automation, filtration, and process equipment, leveraging our decentralized model to pursue local growth opportunities, cross-selling across platforms and integrating acquisitions more efficiently. Our strategy has not changed. That's a good thing. We want to grow DXP organically and through acquisitions, diversify the company, expand our capabilities, and service customers with solutions that are fast, convenient, reliable, and supported by DXP people. We are not chasing growth just to get bigger. We are focused on profitable growth, strong cash generation, and customer relationships that last.

The broader economy continues to have volatility from tariffs, inflation, interest rates, and geopolitical uncertainty. The work our customers do is mission-critical, and the products and services DXP provides are essential to keeping plants, facilities, municipalities, and industrial operations moving. That gives our business resilience. It gives our DXP people a chance to show why DXP is different. During the first half of 2026, our Service Centers and Innovative Pumping Solutions businesses generated $967.3 million in sales, up 14.3% from prior year. That growth reflects both organic execution and recent acquisitions, especially within IPS and our Water and Wastewater platform. Innovative Pumping Solutions again led the way in the second quarter. IPS sales increased 52.6% year over year and 20.3% sequentially to $142.7 million. This growth was driven by water and wastewater activity, increased production contracts, and strategic acquisitions.

Our IPS teams continued to show what technical expertise looks like in the field, solving complex customer problems, delivering engineered solutions, and helping customers move important projects forward. IPS continues to be a strong example of DXP's growth momentum. DXP Water grew to $97 million in the quarter, nearly doubling year-over-year. Municipal infrastructure investments, regulatory requirements, and customer demand for reliable pumping and treating solutions created an attractive long-cycle opportunity for DXP Water. DXP Water generated $175.5 million in sales for the first half of 2026, up 85.6% year-over-year, underscoring the momentum we're building in these markets. These markets where our customers value expertise, reliability, and know-how. Many IPS projects are long-cycle in nature, and when customers choose DXP, they are choosing DXP people who understand the application, the urgency, and the importance of getting the solution right.

Backlog within IPS also remains an important indicator of the momentum we're seeing in the business. During the second quarter, average IPS backlog remained strong and increased compared to both prior period and the first quarter. That growth reflects continued demand for engineered pumping solutions, water and wastewater projects, and production-related work with customers who rely on DXP for technical expertise and execution. The average backlog levels we saw throughout Q2 give us confidence in the durability of customer activity and support our positive outlook for the remainder of 2026. Service Centers also performed well. Sales increased 8.3% year-over-year and 8.9% sequentially to $367.9 million. Organic sales increased to $40.9 million compared to the prior year quarter. This is the heart of DXP's local customer-driven model.

Our service center teams are close to the customer, they understand the market, and they know how to respond quickly when customers need us. That local presence is what allows DXP to be fast and convenient while still bringing technical expertise to our customers. Supply Chain Services increased modestly to $65.8 million, up 0.6% year-over-year and 1.2% sequentially. SCS continues to onboard new customers and related facilities, although that growth was partially offset by lower activity with existing customers. This business is a great example of why being customer-driven experts, because we are not just selling products, we are helping customers improve procurement, manage inventory, reduce complexity, and make their supply chain faster, more convenient, and more efficient. Acquisitions continue to be an important part of DXP's growth strategy. We are disciplined about it.

We are looking for businesses that fit our culture, strengthen our technical capabilities, and help us serve customers better, faster, and more conveniently. During the first quarter of 2026, we acquired three businesses, and during the second quarter, we acquired one additional business. These acquisitions expand our water and wastewater platform, enhance our capabilities, extend our geographic reach, and reinforce our position as a leading distributor of rotating equipment in North America. For the first six months of 2026, acquisitions were $90.6 million, compared to $55.7 million in the prior year period. We are pleased with how recent acquisition businesses are contributing. At the same time, our focus is integration, cross-selling, retaining great people, and making sure each acquired business becomes a part of the DXP culture.

We also completed the acquisition of McBride Machinery on August 1st, 2026, funded with cash on the balance sheet and DXP stock. We're excited to welcome these new DXP people to DXP and look forward to supporting their customers with the broader capabilities of our company in growing DXP Water in Canada. Cash generation improved meaningfully in the second quarter. Free cash flow was $29.8 million for the first six months of 2026. Free cash flow was $56 million compared to negative free cash flow of $8.6 million in the first half of 2025. Our balance sheet liquidity position gives us flexibility to continue to invest in organic growth, fund acquisitions, support working capital, and manage the business through different economic environments. We want to keep growing, but we want to do it the DXP way, with discipline, customer focus, cash generation, and returns that make sense.