DXP ENTERPRISES INC Fiscal Year 2025 Annual Report Summary

DXP Enterprises Inc. delivered a year of strategic growth and strong financial results, culminating on December 31, 2025. The company successfully expanded its operations through organic growth and targeted acquisitions, all while maintaining disciplined financial management and a clear commitment to shareholder returns.

Business Overview: DXP Enterprises Inc. stands as a leading distributor of industrial products and services. It supplies innovative maintenance, repair, and operating (MRO) products, equipment, and integrated supply services to industrial customers. Operating through three core segments—Service Centers, Innovative Pumping Solutions (IPS), and Supply Chain Services (SCS)—DXP offers a comprehensive suite of products and value-added services. These offerings help customers optimize their operations and reduce overall costs.

Financial Highlights for Fiscal Year 2025:

• Total Revenue: DXP generated robust revenue of $1.45 billion, a 7.5% increase from $1.35 billion in fiscal year 2024. Organic expansion and recent acquisitions fueled this growth.
• Net Income: Net income climbed to $72.5 million, up 12% from $64.7 million in the prior year. This reflects improved operational efficiencies and margin management.
• Diluted Earnings Per Share (EPS): Diluted EPS rose to $4.10, compared to $3.65 in 2024, driven by increased profitability and share repurchases.
• Adjusted EBITDA: Adjusted EBITDA, a key measure of operational profitability, increased to $195 million, a 9.0% rise over $179 million in 2024, achieving an Adjusted EBITDA margin of 13.4%.
• Operating Cash Flow: The company produced strong operating cash flow of $110 million, providing significant liquidity for investments and debt reduction.
• Balance Sheet Strength: As of December 31, 2025, DXP reported total assets of $1.8 billion and shareholders' equity of $650 million, demonstrating a healthy financial position.

Management Discussion and Analysis (MD&A) Highlights:

The Management Discussion and Analysis (MD&A) explains DXP's financial condition and operational results in detail. Strong demand in core industrial markets, successful integration of acquired businesses, and effective cost management initiatives drove the company's 2025 performance. Organic sales increases across all segments and strategic acquisitions completed during the year primarily boosted revenue growth. Higher sales volumes, a favorable product mix, and disciplined expense control contributed to improvements in net income and EPS, though increased interest expenses partially offset these gains. The MD&A also outlines DXP's critical accounting policies and estimates, crucial for interpreting the financial statements.

Strategic Growth Through Acquisitions:

DXP advanced its growth-through-acquisition strategy, completing four strategic acquisitions in 2025 for approximately $85 million. These acquisitions primarily expanded DXP's geographic footprint and enhanced its product and service offerings in key industrial markets. Acquired businesses added an estimated $60 million to total revenue in 2025. The company also disclosed a $12.5 million contingent consideration liability from previous acquisitions, representing potential future payments based on the acquired entities' performance. This strategy aims to broaden DXP's market reach and diversify its customer base.

Financial Health:

DXP actively manages its capital structure to support growth and maintain financial flexibility. At year-end, the company's total debt amounted to approximately $620 million.

• ABL Revolver: DXP holds a $250 million Asset-Based Lending (ABL) Revolver, with $75 million drawn as of December 31, 2025. This facility provides flexible working capital and supports operational liquidity.
• Senior Secured Term Loan B: The company's primary debt is a Senior Secured Term Loan B, with an outstanding balance of $545 million, maturing in September 2028. Its variable interest rate, currently SOFR + 3.25%, exposes DXP to benchmark interest rate fluctuations.
• Debt Covenants: DXP complies with all financial covenants in its credit agreements, including leverage and fixed charge coverage ratios, securing continued access to its credit facilities.
• Cash Position: The robust operating cash flow of $110 million significantly boosted the company's liquidity, allowing for growth investments and debt management.

Shareholder Returns:

DXP showcased its commitment to shareholder value through ongoing share repurchase programs. In 2025, the company bought back 750,000 shares of its common stock for a total of $35 million. This activity fell under the December 2022 authorization, which still had approximately $45 million available at year-end 2025. Share repurchases aim to reduce the share count and enhance earnings per share.

Employee Incentives:

To align employee interests with shareholder success, DXP employs its 2016 Omnibus Incentive Plan. This plan grants various equity awards, such as restricted stock units (RSUs) and stock options, to key employees and executives. In 2025, these awards led to a non-cash stock-based compensation expense of approximately $8.2 million. The plan aims to attract, retain, and motivate talent by offering a direct stake in the company's long-term performance.

Operational Segments and Geographic Performance:

DXP operates through three primary business segments, each significantly contributing to its overall performance:

• Service Centers: This segment generated 65% of total revenue ($942.5 million), focusing on Maintenance, Repair, and Operations (MRO) products and services. It posted an operating income of $98 million, reflecting a 10.4% operating margin.
• Innovative Pumping Solutions (IPS): IPS produced 20% of total revenue ($290 million) and an operating income of $35 million, achieving a 12.1% operating margin. This segment specializes in custom-engineered pumping systems and services.
• Supply Chain Services (SCS): SCS contributed 15% of total revenue ($217.5 million) with an operating income of $22 million, resulting in a 10.1% operating margin. This segment delivers integrated supply chain solutions and inventory management.

Geographically, the U.S. market comprised 88% of total revenue, with Canada providing 10%, and other international operations accounting for the remaining 2%.

Competitive Position: DXP operates within a highly fragmented and competitive industrial distribution and services market. Its competitive advantages arise from its broad product and service offerings, extensive geographic footprint, deep technical expertise, and strong, long-standing customer relationships. The company differentiates itself by delivering value-added services, including custom-engineered solutions, inventory management, and technical support, which extend beyond basic product distribution. DXP contends with national, regional, and local distributors, as well as direct sales by manufacturers. Its capacity to offer integrated solutions across multiple product categories and provide localized service remains crucial for maintaining its market position and capturing market share.

Key Risks and Challenges:

Investors should consider several key risks:

• Economic Downturn: DXP's performance depends heavily on industrial activity. A significant slowdown in the manufacturing or energy sectors could negatively impact demand for its products and services.
• Supply Chain Disruptions: Global supply chain volatility, including raw material shortages and transportation delays, could increase costs and affect product availability.
• Interest Rate Fluctuations: With its variable-rate debt, rising interest rates could increase borrowing costs, impacting profitability and cash flow.
• Acquisition Integration Risk: While acquisitions drive growth, challenges in integrating new businesses, such as cultural differences and operational complexities, could hinder expected synergies.
• Competition: The industrial distribution market is highly competitive, demanding continuous investment in technology, service, and pricing strategies.
• Cybersecurity Risks: As a digitally integrated company, DXP faces ongoing threats from cyberattacks, which could lead to data breaches, operational disruptions, and reputational damage.

Future Outlook and Strategic Priorities for 2026:

For fiscal year 2026, DXP will continue its strategic path, focusing on:

• Organic Growth Initiatives: Investing in sales force expansion, digital capabilities, and new product introductions to drive market share gains.
• Targeted Acquisitions: Pursuing accretive acquisitions that align with its core competencies and expand its geographic and product reach.
• Operational Efficiency: Implementing initiatives to optimize its supply chain, reduce operating costs, and enhance service delivery across all segments.
• Capital Allocation: Prioritizing debt reduction while maintaining flexibility for strategic investments and opportunistic share repurchases.

DXP Enterprises reaffirms its commitment to delivering shareholder value through a balanced approach of strategic growth, disciplined financial management, and operational excellence.