DXP Enterprises Q1 Earnings Call Highlights

Key Points

• Q1 results: DXP reported sales of $521.7 million, up 9.5% year‑over‑year, with gross margin expanding to 32.3% and an adjusted EBITDA margin of 11.1%, and generated $26.3 million of free cash flow.
• Management said January was a "so soft" start but sales accelerated through February and March and April average daily sales were up 15% year‑over‑year, which management says could drive incremental margin if the trend continues.
• IPS and M&A: Innovative Pumping Solutions led growth with sales up 37.7% to $111.7 million and strong backlog, acquisitions contributed $40.7 million of sales, DXP expects more deals, and cash fell after recent purchases while total debt is $844.7 million (secured leverage ~2.6x).

DXP Enterprises NASDAQ: DXPE reported fiscal first-quarter 2026 results that management described as a “slow start” to the year, driven by unexpectedly soft sales in January that improved through February and March. Despite the uneven start, the company posted nearly 10% year-over-year sales growth, expanded gross margins, delivered adjusted EBITDA margins above 11%, and generated meaningful free cash flow.

Management cites January softness, stronger trend into April

Chairman and CEO David Little said January sales were “so soft” across end markets, including water, oil and gas, and general industry, and the company did not have a clear explanation for the slowdown. “We are not sure why sales in January were so soft,” Little said, adding that performance improved in February and “to a greater extent” in March.

In the question-and-answer session, CFO Kent Yee provided monthly average daily sales figures, citing a steady acceleration through the period:

• January: $7.2 million per day
• February: $8.4 million per day
• March: $9.2 million per day
• April: $9.0 million per day

Yee also noted that April average daily sales were up 15% year-over-year, which he said could support incremental margin as the company moves through the quarter. While DXP does not provide formal guidance, Yee said management believes “there’s more leverage in the business” and that margins “could be higher” if sales trends continue.

Quarterly financial results show sales growth and margin expansion

For the first quarter, DXP reported sales of $521.7 million, up 9.5% year-over-year. Little said sales per business day rose to $8.28 million from $7.57 million. Yee added that acquisitions owned for less than one year contributed $40.7 million of sales during the quarter, and that on an acquisition-adjusted basis, average daily sales were $7.6 million compared with $7.1 million in the prior-year period.

Gross profit margin expanded to 32.3%, which management characterized as nearly an 80-basis-point improvement. Yee attributed the year-over-year margin gain to higher margins across all three segments and contributions from acquisitions with higher relative gross margins. He also pointed to sales mix, noting that Service Centers represented 65% of sales in the quarter, Innovative Pumping Solutions 23%, and Supply Chain Services 12%, with the higher Innovative Pumping Solutions mix supporting consolidated gross margins.

DXP reported operating income of $42.5 million. Adjusted EBITDA was $57.8 million, representing an 11.1% margin, which Yee said remained above 11% despite seasonal pressures such as higher payroll taxes and insurance. Adjusted diluted earnings per share was $1.26, while diluted EPS was $1.22 on net income of $20.0 million. Little said the quarter included higher interest expense, amortization, and “a few discrete items” in SG&A—such as healthcare, legal, and audit-related costs tied to acquisitions—that management views as timing-related and expected to normalize.

Segment results: IPS leads growth; service and supply chain improve

Innovative Pumping Solutions (IPS) delivered the fastest growth, with sales up 37.7% to $111.7 million. Little said growth was driven by energy-related and water and wastewater activity, along with contributions from recent acquisitions. He also said bookings and backlog in energy infrastructure were above long-term averages and that many engineered solutions are “large, multi-quarter in nature,” supporting revenue visibility.

Yee said IPS continued to experience strong backlogs in both energy and water and wastewater. He noted that the energy-related average backlog increased 2.1% sequentially in the quarter, “stemming the declines” seen in the third and fourth quarters of the prior fiscal year. Yee also highlighted that DXP Water recorded its fourteenth consecutive quarter of sequential sales growth and represented 66% of IPS sales in the first quarter, while cautioning that project and product delivery timelines are stretching in an already long-cycle business.

Service Centers posted 3.3% year-over-year sales growth but declined 5.1% sequentially, according to Yee. He said regions with sequential and year-over-year growth included South Central, South Rockies, and South Atlantic, and that the metalworking division also experienced sequential and year-over-year sales growth. Yee added that segment operating income margins have been about 14% or greater for four consecutive quarters and that management expects this to continue, while seeing opportunities for greater consistency across regions.

Supply Chain Services grew 2.7% year-over-year and 6.2% sequentially. Little said the business continues to onboard new customers and that implementation timing and facility-level ramp-up can create variability, but demand for its technology-enabled integrated supply solutions is building. Yee said interest is increasing due to “proven technology and efficiencies,” and management expects a stronger 2026 as new customers are onboarded.

SG&A increases tied to seasonality and one-time costs

DXP’s SG&A rose $16.1 million year-over-year and $6.2 million sequentially to $126.1 million. Yee attributed the increase to seasonal payroll taxes, insurance, administrative items, business growth and incentive compensation, as well as “unique and discrete one-time items,” including elevated healthcare costs, excess legal and consulting costs, and one-time equipment and fleet costs. SG&A as a percentage of sales increased to 24.2%.

In response to a question about corporate expenses, Yee said results can vary and suggested a range “between the $20 million-$28 million” over the short to medium term, noting that healthcare claims are a variable cost and that adding employees and acquisitions can drive increases. He also emphasized DXP’s self-insured structure for healthcare.

Free cash flow improves; acquisitions remain a priority

DXP reported operating cash flow of $29.8 million and free cash flow of $26.3 million in the quarter. Little said the company generated free cash flow even while investing in working capital to support growth, particularly in IPS and the water-focused business. Working capital increased $17.9 million from December to $379.6 million, which was 18.4% of sales.

Cash on the balance sheet totaled $213.4 million as of March 31, down $90.4 million from the end of the prior quarter, which Yee said primarily reflected acquisitions of Mid Atlantic Storage Systems, PREMIERflow, and Ambiente H2O. Capital expenditures were $3.3 million, which Yee characterized as less than 1% of sales and more in line with maintenance levels after prior investment tapered in the second half of 2025.

Yee said total debt outstanding was $844.7 million at quarter-end. He also noted that DXP repriced its debt in the fall and raised an incremental $205 million, contributing to a $1.8 million increase in interest expense compared to the first quarter of the prior year. As of March 31, the company’s fixed charge coverage ratio was 2.5 to 1 and secured leverage ratio was 2.6 to 1, with covenant EBITDA for the last 12 months of $243.9 million.

On acquisition activity, Yee said DXP expects to close another one to two acquisitions before the second quarter ends. He added the company has three deals under letter of intent and two more close to reaching that stage, with a continued focus on “sustainable performance” and fit.

Little closed the call by reiterating that January’s slowdown “threw us off stride,” but said bookings improved each month of the quarter. “We feel good about what we’re doing going forward,” he said.

About DXP Enterprises NASDAQ: DXPE

DXP Enterprises, Inc is a Houston, Texas–based industrial products and services distributor serving customers across North America. The company provides a broad portfolio of maintenance, repair and operations (MRO) supplies, including fluid power components, safety products, mechanical power transmission parts, and instrumentation. DXP's product offering spans well-recognized private brands as well as equipment and parts from leading global manufacturers, enabling clients in energy, heavy industrial and manufacturing sectors to source critical components from a single supplier.

Through its network of service centers and specialized repair facilities, DXP delivers inventory management programs, turnkey fluid power rebuilds and custom assembly solutions.

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