DXP Enterprises, Inc.

Hello, everyone. Thank you for joining us and welcome to DXP Enterprises' first quarter 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to David Little, CEO. David, please go ahead.

Yep. Actually, Samantha, this is Kent Yee, Chief Financial Officer. I'll walk through a few comments and then we'll hand it over to David Little, our CEO and Chairman. 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 David Little, our chairman and CEO, to provide his thoughts and a summary of our first quarter performance and financial results. David?

Good afternoon, and thanks for joining us today on DXP's physical 2026 first quarter conference call. Well, we delivered a slow start to 2026, especially sales in January. which improved in February and improved to a greater extent in March. We are not sure why sales in January were so soft, but glad to see the growth in the other two months and the growth in bookings during the quarter plus continuing in April. We also maintain gross margin discipline, generated meaningful free cash flow that gives us confidence in the quarters ahead. From an earnings standpoint, the quarter included increased interest expense, amortization, and a few discrete items in SG&A like healthcare, legal, audit-related costs tied to our acquisition activity, which we view our timing and will normalize and are not reflected of our underlying earning power. Our strategy remains simple and consistent. Be customer-driven experts, execute operationally, grow where we have competitive advantage, allocate capital in a disciplined way. This quarter reflects steady execution across our diversified platforms. We grew sales nearly 10%, expanded gross profit margins, delivered EBITDA margins above 11%, all while generating strong cash flow. On behalf of the 3,497 DX people you can trust, I want to thank our customers, suppliers, and shareholders for their continued trust and support. Our team continues to execute with consistency. We remain focused on profitable growth and cash generation. Consolidated performance and in the first quarter, sales were 521.7 million, up 9.5% year-over-year. Sales per business day increased to 8.28 million from 7.57 million. Gross profit margins expanded 32.3%, nearly 80 basis points higher. Adjusted EBITDA was 57.8 million, or 11.1% margin. Operating income totaled 42.5 million. Adjusted diluted earnings per share was 1.26. Free cash flow was 26.3 million. These results are driven by a combination of organic growth, favorable mix, operating execution, and contributions from accretive acquisitions. Margin performance reflects pricing discipline, cost controls, and ongoing shift towards higher-value products, engineered solutions, and services. SG&A was higher year-over-year due to several unique and some non-recurring items, including health care, claims, volatility, legal and audit costs tied to acquisitions, and other one-time expenses. We expected those to normalize as the year progresses and remain focused on managing SG&A while continuing to invest in growth initiatives that generate acceptable returns. From a growth standpoint, we continue to lean into markets where demand is durable and where DXP's capabilities matter. Water and wastewater, energy infrastructure, general industry, Selected technology-driven markets like data centers and air compression continue to provide attractive long-term demand drivers. Across DXP, growth is coming from several consistent things, expanding technical and engineered solutions, broadening solutions around pumps, automation, filtration, and process equipment, leveraging our decentralized model to pursue local growth opportunities and cross-selling across platforms and integrating acquisitions more effectively. We are not chasing volume for volume's sake. Growth is targeted at areas where we can maintain margins, generate cash, and deepen our customer relationships. Thank you, DXP sales and operational professionals for the for teaming up together and winning for our customers and stakeholders. Thank you to our corporate support for their efforts to support both internal and external customers. Segment Performance Innovative Pumping Solutions continues to deliver engineering solutions that matter. Sales increased 37.7% to $111.7 million. Growth was driven by energy-related and water and wastewater activity, along with contributions from recent acquisitions. Bookings and backlog in energy infrastructure remain above long-term averages and were encouraged by the traction we're seeing early in fiscal 2026. Many of these engineer solutions are large, multi-quarter in nature, which support revenue visibility and backlog conversion moving forward. We also continue to build scale in water and wastewater markets within IPS, where municipal infrastructure investments and regulatory requirements create long cycle demand for pumps and treatment solutions. Service centers produced 3.3% total sales growth This segment continues to benefit from its diversification across end markets and its multi-product MRO-focused model. Growing is coming from technical products such as automation, vacuum pumps, filtration, newer pump brands, serving water and industrial applications. We are also seeing demand improvements in markets like air compression and data centers, where customers need reliable systems for pumping, cooling, power, and filtration areas where DXP can provide bundled solutions rather than just individual components. Supply chain services grew 2.7% year-over-year and 6.2% sequentially. This business continues to onboard new customers As we have discussed before, implementation, timing, and facility-level ramp-up can create temporary variability, but demand for USCIS's technology that enables integrated supply solutions continues to build. The sales pipeline remains encouraging, and we expect performance to improve gradually on onboarding, mature, and program volume scale. Cash flow and capital discipline and balance sheet. Cash generation remains a core focus for DXP. In the first quarter, we generated $29.6 million in operating cash flow and $26.3 million of free cash flow, even while investing in working capital to support growth, particularly in IPS and our water-focused business. Our balance sheet remains strong with ample liquidity to fund organic growth initiatives, integrate recent acquisitions, pursue disciplined accretive M&A, and maintain financial flexibility through different macro environments. We continue to emphasize cash conversion, working capital discipline, and return on invested capital when making growth and acquisition decisions. As we move through physical 2026, our priorities remain clear. Drive organic growth and attractive in markets. Maintain margin discipline and operational execution. Execute strategic accretive acquisitions and generate cash and allocate capital thoughtfully. We like the current setup in our markets, especially water, general industry, and energy-related infrastructure. Bookings are trending higher, backlog remains healthy to higher, and based on current visibility, we're encouraged about the second quarter and the remainder of the year. DXP's diversified model, improving demand indicators, and consistent operating discipline gives us confidence in our ability to execute through fiscal 2026. In closing, I want to thank our DX people for their execution, teamwork, and commitment. They continue to differentiate DXP in the markets we serve and create value for our customers and shareholders. With that, I'll turn it over to Kent and walk you through the financial details.

Thank you, David. And thank you to everyone for joining us for our review of our first quarter of 2026 financial results. Q1 shows that we carried momentum from last year into fiscal 2026, but started off slower than anticipated. That said, at this time last year, we experienced a similar trend and finished 2025 strong. Likewise, we anticipate 2026 to be another strong year. Specifically, in terms of Q1, we had strength in sales during the months of February and March, strong gross margin performance, and good free cash flow generation. To summarize the quarter, Q1 key takeaways are as follows. 9.5% sales growth to sales per business day showing 28% growth between January and March, strong gross margin performance with gross margin improvement sequentially and year over year, and great quarterly free cash flow generation. In terms of our detailed results, total sales for the first quarter increased 9.5% year over year to 521.7 million. Acquisitions that have been with DXP for less than a year contributed 40.7 million in sales during the quarter. Average daily sales for the first quarter were 8.3 million per day versus 7.6 million per day in Q1 of 2025. Adjusting for acquisitions, average daily sales were 7.6 million per day for the first quarter of 2026 versus 7.1 million per day during the first quarter of 2025. As is typical, sales accelerated through the quarter. with average daily sales increasing from 7.2 million per day in January to 9.2 million per day in March, reflecting a normal quarter-end push but highlighting strong acceleration coming into quarter-end. In terms of our business segments and on a year-over-year basis, innovative pumping solutions grew 37.7%. This was followed by service centers growing 3.3% and supply chain services growing 2.7% year-over-year. In terms of our service centers, sales grew 3.3% year-over-year and declined 5.1% sequentially. Regions that experienced sequential as well as year-over-year sales growth include our South Central, South Rockies, and South Atlantic regions. From a product perspective, our metalworking division also experienced sequential and year-over-year sales growth. From a segment operating income perspective, we have had four consecutive quarters of around 14% or greater and we look for this to continue as we still believe there are regions that can enhance or become more consistent in their operating income margins. In terms of innovative pumping solutions, we continue to experience strong backlogs in both our energy and water and wastewater businesses. Our Q1 2026 energy-related average backlog increased 2.1% sequentially, stemming the declines we saw in Q3 and Q4 of last year. As David mentioned, and as we have been discussing on previous earnings calls, we have booked a few large engineered projects in both energy and water that we have recognized some revenue in 2025 and will continue into 2026. The conclusion continues to remain that we are trending meaningfully above all notable sales levels based upon where our backlog stands today. Our DSP water platform experienced our 14th consecutive quarter of sequential sales growth and we look for this to continue as we move through 2026. That said, we are seeing project and product delivery timelines stretched in an already long-cycle business. We also see strength in our IPS water backlog as it continues to grow due to a combination of organic and acquisition additions. It is worth noting that DXP water was 66% of IPS sales in Q1. Supply chain services performance primarily reflects a 6.2% increase sequentially as well as growing 2.7% year-over-year. As we discussed during Q3 and Q4 of last year, we experienced an uptick in supply chain services performance, which we are seeing here in Q1. Interest and demand for SCS services is increasing because of the proven technology and efficiencies they perform for all of their industrial customers, and we expect a stronger 2026 as we onboard new customers. Turning to our gross margins, DXP's total gross margins were 32.3%, a 79 basis point improvement over Q1 of 2025. This improvement is attributed to increased margins year-over-year across all three business segments and the contribution from acquisitions at a higher overall relative gross margin versus our base DXP business. That said, from a segment mix, sales contribution in Q1, service centers contributed 65%, innovative pumping solutions was 23%, supply chain services was 12 percent of sales with our mix increasing more towards innovative pumping solutions this continues to elevate bxp's gross margins in terms of operating income combined ladies and gentlemen we are currently experiencing technical difficulties please stand by as we resolve the issue