Core Thesis - DXP Enterprises, Inc. presents a compelling bullish case due to its strong execution across diversified segments, record backlogs, and disciplined capital allocation [2][5] Financial Performance - As of December 2nd, DXP's share was trading at $96.50, with a trailing P/E of 17.64 [1] - Consensus estimates project Q3 revenue of $499 million and EPS of $1.57, with a stronger base case of $502–$512 million in revenue and $1.55–$1.65 in EPS [2] - In Q2, DXP reported an EPS of $1.43, beating estimates, with revenue of $498.7 million [3] Segment Performance - Innovative Pumping Solutions (IPS) grew 27.5% year-over-year with 19.9% margins, while Service Centers rose 10.8% at 14.8% margins [3] - The Water segment has shown resilience, marking its 11th consecutive quarterly increase [4] Strategic Initiatives - Management expresses confidence in sustained project flow, particularly from IPS bookings, which provide visibility for the next 9–12 months [4] - Recent acquisitions, including McBride and Moores Pump, are expected to enhance scale and quality [4] Market Conditions - The macroeconomic backdrop is favorable for DXP's hybrid MRO-plus-project model, with manufacturing below 50 and services above 50 [5] - Key watchpoints include backlog trends, SCS profitability improvements, and ongoing M&A activity [5]

Core Viewpoint - The average brokerage recommendation (ABR) for DXP Enterprises (DXPE) is 1.83, indicating a general suggestion to buy the stock, but reliance solely on this metric may not be advisable due to the potential bias in brokerage recommendations [2][5][10]. Brokerage Recommendations - DXP Enterprises has an ABR of 1.83, which is close to a "Strong Buy" rating, based on recommendations from three brokerage firms [2]. - Among the three recommendations, one is classified as "Strong Buy" and one as "Buy," each representing 33.3% of the total recommendations [2]. Limitations of Brokerage Recommendations - Studies indicate that brokerage recommendations often lack success in guiding investors towards stocks with significant price appreciation potential [5]. - Analysts from brokerage firms tend to exhibit a strong positive bias in their ratings, issuing five "Strong Buy" recommendations for every "Strong Sell" [6][10]. - The interests of brokerage firms may not align with those of retail investors, leading to a lack of reliable insight into future stock price movements [7]. Zacks Rank as an Alternative - The Zacks Rank, a proprietary stock rating tool, categorizes stocks from Zacks Rank 1 (Strong Buy) to Zacks Rank 5 (Strong Sell) and is considered an effective indicator of near-term stock price performance [8][11]. - The Zacks Rank is based on earnings estimate revisions, which are strongly correlated with stock price movements, unlike the ABR which is based solely on brokerage recommendations [11][12]. Current Earnings Estimates for DXP Enterprises - The Zacks Consensus Estimate for DXP Enterprises remains unchanged at $4.75 for the current year, suggesting stable analyst views on the company's earnings prospects [13]. - The unchanged consensus estimate has resulted in a Zacks Rank of 3 (Hold) for DXP Enterprises, indicating a cautious approach despite the Buy-equivalent ABR [14].

Core Insights - DXP Enterprises reported Q3 CY2025 revenue of $513.7 million, exceeding analyst expectations by 3% with an 8.6% year-on-year growth [1][6] - Non-GAAP profit per share was $1.34, which was 14.4% below analysts' consensus estimates of $1.57 [1][6] - The market reacted negatively to the profit shortfall despite strong sales growth [3] Revenue and Profit Performance - Revenue of $513.7 million compared to analyst estimates of $498.8 million, marking an 8.6% year-on-year growth [6] - Adjusted EPS of $1.34 fell short of expectations of $1.57, representing a 14.4% miss [6] - Adjusted EBITDA was $56.5 million, beating estimates of $54.7 million, with an 11% margin [6] Segment Performance - Service Centers segment showed consistent year-over-year growth, driven by demand in air compressors, metalworking, and safety services [7] - Innovative Pumping Solutions saw increased sales, with the DXP Water platform now representing a majority of segment sales, improving overall margins [7] - Supply Chain Services faced a decline due to reduced spending in oil and gas and chemical sectors, with expectations for recovery in early 2026 [7] Management Outlook - Management anticipates continued top-line momentum supported by a healthy acquisition pipeline and expansion in water and wastewater projects [4] - CFO indicated that 11% EBITDA margins are sustainable for now, but cautioned about seasonal softness and elevated SG&A expenses in the upcoming quarter [4] - The company is focusing on balancing growth investments with operational efficiency as it enters the next year [4] Cost and Expense Analysis - Rising operating expenses were attributed to merit raises, increased insurance premiums, technology investments, and professional fees from acquisition activities [8] - Some elevated costs, such as insurance and claims, are expected to persist but are deemed necessary for long-term growth [8]

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Financial Data and Key Metrics Changes - Total sales for Q3 2025 increased by 8.6% year over year to a record $513.7 million, with adjusted EBITDA of $56.5 million, reflecting an adjusted EBITDA margin of 11% [5][15][23] - Year-to-date total sales are up 11.8%, and adjusted EBITDA is up 17.6% compared to the previous year [5][12] - Overall gross profit margins for Q3 were 31.4%, a 50-basis point improvement over Q3 2024 [10][20] Business Line Data and Key Metrics Changes - Innovative Pumping Solutions (IPS) sales grew by 11.9% year over year to $100.6 million, while Service Centers sales increased by 10.5% to $350.2 million [5][15] - Supply Chain Services experienced a decline of 5% year over year, with sales at $63 million [5][15][19] - IPS backlog remains strong, with energy-related bookings showing resilience, although the average backlog declined by 3.3% for the first time in 10 quarters [17][18] Market Data and Key Metrics Changes - Regions showing year-over-year growth include South Central, California, Southeast, South Rockies, Texas Gulf Coast, and Northern Rockies [9][18] - The service center segment achieved its strongest performance in the last 10 quarters, driven by diverse in-market dynamics [18] Company Strategy and Development Direction - The company remains focused on organic and acquisition growth, increasing gross profit margins, and enhancing productivity [4][5] - DXP is investing in its core capabilities to drive long-term growth and deliver a differentiated customer experience [5][12] - The acquisition pipeline remains active, with five acquisitions closed year-to-date and plans for more before the end of Q1 2026 [27][28] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining adjusted EBITDA margins above 11% and highlighted the importance of managing demand levels and pricing [12][36] - The company anticipates a mild Q4 due to seasonal factors but expects a stronger outlook for Q1 2026 [10][19] - Management noted that while expenses were higher than expected, they were necessary for growth and investment in the business [45] Other Important Information - SG&A expenses increased by $11 million year over year, reflecting investments in personnel, technology, and acquisitions [11][22] - Free cash flow for Q3 was $28.2 million, an increase from $24.4 million in Q3 2024, indicating improved profitability [26] Q&A Session Summary Question: Could you walk through Q3 sales numbers and provide insights on Q4? - Management provided daily sales figures for Q3, noting July at $7.26 million, August at $7.95 million, and September at $8.9 million, with October at $7.59 million [35] Question: Should we expect similar EBITDA margin compression from Q3 to Q4 as in previous years? - Management indicated confidence in sustaining 11% EBITDA margins, despite potential seasonal impacts in Q4 [36] Question: What should be expected for corporate expenses moving forward? - Management explained that Q3 expenses were elevated due to insurance renewals and unique claims, but they expect similar levels in Q4 [38][40] Question: Are there any opportunities in the data center market? - Management acknowledged the potential in the data center market but noted it has not been a significant area of success yet [41][42]

Financial Performance - For the nine months ended September 30, 2025, DXP Enterprises reported approximately $1.3 billion in sales for its Service Centers and Innovative Pumping Solutions segments, reflecting a 14.1% increase compared to the same period in 2024[100]. - The Supply Chain Services segment generated approximately $191.7 million in sales for the nine months ended September 30, 2025, a decrease of 1.1% compared to the same period in 2024[101]. - Acquisition sales for the nine months ended September 30, 2025, were $74.1 million, up from $63.7 million in the same period in 2024[102]. - Organic sales for the nine months ended September 30, 2025, totaled $1.414 billion, compared to $1.267 billion for the same period in 2024, indicating a significant growth[105]. - The net income for the nine months ended September 30, 2025, was $65.8 million, compared to $49.1 million for the same period in 2024, representing a 33.9% increase[105]. - EBITDA for the nine months ended September 30, 2025, was $161.1 million, an increase from $133.3 million in the same period in 2024, reflecting a growth of 20.8%[105]. - Sales for the three months ended September 30, 2025 increased by $40.8 million, or 8.6%, to approximately $513.7 million from $472.9 million for the prior year's corresponding period[115]. - Net income for the three months ended September 30, 2025 was $21.6 million, or 4.2% of sales, compared to $21.1 million, or 4.5% of sales, for the prior year's corresponding period[114]. - Sales for the nine months ended September 30, 2025 increased by $157.8 million, or 11.9%, to approximately $1.5 billion from $1.3 billion for the prior year's corresponding period[125]. Profitability Metrics - The gross profit margin for the nine months ended September 30, 2025, improved to 31.5%, compared to 30.6% for the same period in 2024[105]. - Gross profit margin for the three months ended September 30, 2025 was 31.4%, compared to 30.9% for the prior year's corresponding period, positively impacted by 50 basis points due to recent acquisitions[119]. - Gross profit margin for the nine months ended September 30, 2025 was 31.5%, compared to 30.6% for the prior year's corresponding period, positively impacted by 90 basis points due to recent acquisitions[129]. - Operating income for the three months ended September 30, 2025 increased by $4.1 million to $43.7 million, primarily driven by increases in the Service Centers segment[121]. - Operating income for the nine months ended September 30, 2025 increased by $24.1 million, or 22.7%, to $130.2 million from $106.1 million in the prior year's corresponding period[131]. Cash Flow and Capital Expenditures - Free cash flow for the nine months ended September 30, 2025, was $19.5 million, down from $54.4 million in the same period in 2024[105]. - Net cash provided by operating activities for the nine months ended September 30, 2025, was $56.5 million, down from $70.1 million in the prior year[145]. - Capital expenditures for the nine months ended September 30, 2025, were $37.0 million, compared to $15.7 million in 2024[159]. - Free Cash Flow for the nine months ended September 30, 2025, was $19.5 million, a significant decrease from $54.4 million in 2024[140]. Debt and Working Capital - Total outstanding debt as of September 30, 2025, was $644.0 million, accounting for 56.9% of total capitalization of $1.1 billion[149]. - Net working capital as of September 30, 2025, increased to $364.6 million, up $73.6 million from $291.0 million as of December 31, 2024[157]. - Interest expense for the nine months ended September 30, 2025 decreased by $2.3 million compared with the prior year's corresponding period, primarily due to refinancing of the Term Loan[132]. Strategic Focus - The company is actively monitoring economic conditions and adjusting strategies to mitigate adverse effects from inflation and supply chain challenges[97]. - DXP Enterprises continues to focus on maintaining strong margins despite vendor price increases, demonstrating resilience in its operations[100]. - The Company invested $24.4 million in acquisitions during the nine months ended September 30, 2025, a decrease from $149.4 million in the same period of 2024[158]. Tax and Expenses - The effective tax rate for the three months ended September 30, 2025 was 26.6%, compared to 11.1% for the prior year's corresponding period, primarily due to a lower tax benefit from research and development tax credits[122]. - Selling, general and administrative expenses (SG&A) for the three months ended September 30, 2025 increased by $11.1 million, or 10.4%, to $117.6 million from $106.5 million for the prior year's corresponding period[120]. - Adjusted EBITDA for the three months ended September 30, 2025, was $56.5 million, representing a 7.3% increase from $52.4 million in 2024[138].

Financial Performance - Sales increased by 8.6% to $513.7 million in Q3 2025, compared to $472.9 million in Q3 2024[7] - Organic sales grew 11.5% year-over-year[7] - Acquisition sales contributed $18.4 million to total sales[7] - Net income increased 2.5% to $21.6 million for the third quarter, compared to $21.1 million for the third quarter of 2024[7] - Earnings per diluted share increased to $1.31, based on 16.5 million diluted shares, compared to $1.27 in Q3 2024, based on 16.6 million diluted shares[7] - Cash flow from operating activities increased 23.1% to $34.9 million, compared to $28.3 million in Q3 2024[7] - Free Cash Flow increased 15.4% to $28.1 million, compared to $24.4 million in Q3 2024[7] - Adjusted EBITDA was $56.5 million, compared to $52.4 million for the third quarter of 2024[7] - Adjusted EBITDA margin was 11.0%, compared to 11.1% respectively[7] Strategic Actions - The company closed one acquisition during the third quarter and two subsequent to quarter end[7]

Financial Performance - DXP reported third quarter 2025 sales of $513.7 million, an 8.6% increase compared to $472.9 million in Q3 2024[6] - Adjusted EBITDA for the third quarter was $56.5 million, up from $52.4 million in the same quarter last year, representing an Adjusted EBITDA margin of 11.0%[6] - Net income for the third quarter increased 2.5% to $21.6 million, compared to $21.1 million in Q3 2024[6] - Diluted earnings per share for the third quarter was $1.31, based on 16.5 million diluted shares, compared to $1.27 in Q3 2024[6] - Operating income for Q3 2025 was $75.0 million, up 7.3% from $69.9 million in Q3 2024[19] - Adjusted net income for Q3 2025 was $22.2 million, slightly down from $23.7 million in Q3 2024[28] - EBITDA for Q3 2025 was $54.3 million, compared to $48.2 million in Q3 2024, marking a 12.5% increase[23] - The company reported an EBITDA margin of 10.6% for Q3 2025, compared to 10.2% in Q3 2024[23] Cash Flow and Liquidity - Cash flow from operating activities rose 23.1% to $34.9 million, compared to $28.3 million in Q3 2024[6] - Free Cash Flow increased 15.4% to $28.1 million for the third quarter, compared to $24.4 million in Q3 2024[6] - Free cash flow for Q3 2025 was $28.1 million, an increase from $24.4 million in Q3 2024[27] Revenue Breakdown - Revenue from Service Centers was $350.2 million, a 10.5% year-over-year increase, with a 14.7% operating income margin[6] - Revenue from Innovative Pumping Solutions was $100.6 million, an 11.9% year-over-year increase, with an 18.3% operating income margin[6] - Organic sales for Q3 2025 totaled $495.3 million, a 11.5% increase from $444.4 million in Q3 2024[26] Balance Sheet - Total debt outstanding as of September 30, 2025, was $644.0 million, with a secured leverage ratio of 2.31:1.0[4] - Total assets as of September 30, 2025, were $1.444 billion, up from $1.349 billion at the end of 2024[17] - Total liabilities increased to $956.1 million from $926.7 million at the end of 2024[17] Acquisitions - DXP completed three acquisitions through Q3 2025 and two additional acquisitions in Q4 2025[5]

Core Insights - DXP Enterprises reported third-quarter results with sales growth of 8.6% year-over-year to $513.7 million, exceeding analyst estimates, but adjusted earnings fell short, posting $1.34 per share, which was 14.4% below the consensus estimate of $1.57 per share [1] - The market reacted negatively to the earnings miss, leading to a 17.8% drop in shares, indicating a focus on profitability over revenue growth [1] - DXP's stock has shown significant volatility, with 23 moves greater than 5% in the past year, highlighting the impact of recent news on market perception [3] Market Context - The broader market has experienced fluctuations due to negative economic news and rising consumer inflation expectations, which have contributed to investor fatigue and a pullback from recent rallies [4] - DXP's stock is currently trading 19.8% below its 52-week high of $127.63, despite being up 21.4% since the beginning of the year [5] - The market sentiment is mixed, with positive factors like anticipated monetary easing countered by concerns over slowing consumption and inflation [4]