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Date
Thursday, Aug. 7, 2025, at 3:30 p.m. ET
Call participants
Chairman and Chief Executive Officer — David Little
Chief Financial Officer — Kent Yee
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Takeaways
Total sales-- $498.7 million for the fiscal second quarter ended June 30, 2025, up 11.9% year-over-year and 4.7% sequentially, establishing a new quarterly record.
Adjusted EBITDA-- Adjusted EBITDA was $57.3 million for the fiscal second quarter, with an 11.5% adjusted EBITDA margin, representing an all-time high for the company.
Diluted EPS-- $1.43 per diluted share for the quarter, compared to $1.00 per diluted share in the same quarter last year, supported by higher sales and improved gross margins.
Gross profit margin-- 31.65% gross margin for the quarter, gross profit margin increased 72 basis points year-over-year.
SG&A expenses-- $111.8 million SG&A for the fiscal second quarter, up $11.4 million year-over-year, yet decreased as a percentage of sales to 22.42%.
Service Centers segment sales-- $339.7 million for the fiscal second quarter, up 10.8% year-over-year and 3.9% sequentially.
Innovative Pumping Solutions (IPS) sales-- Increased 27.5% year-over-year and 8.5% sequentially, with the energy business up 37.3% year-over-year.
IPS Water Platform sales-- $48.7 million for the fiscal second quarter, marking the eleventh consecutive quarter of sequential sales growth.
Supply Chain Services sales-- $6.4 million for the fiscal second quarter, up 3.3% sequentially and flat year-over-year; secured a $20+ million contract that turned profitable in July 2025.
Acquisition contribution-- Acquisitions completed within the year added $24.6 million in sales during the fiscal second quarter.
Backlog-- IPS energy backlog reached an all-time high in the fiscal second quarter, IPS energy-related backlog up 6.6% sequentially when excluding a single large project.
Operating leverage-- Reported 1.6x operating leverage for the fiscal second quarter, with five consecutive quarters above 14% segment operating income margins as of the fiscal second quarter.
Free cash flow-- Free cash flow was $8.3 million for the fiscal second quarter, up from $5.9 million in 2024.
CapEx-- $10.3 million in CapEx for the fiscal second quarter, down $9.6 million from the first quarter, up $1.5 million versus 2024; expected to decrease over the next two quarters.
Acquisition activity-- Two acquisitions closed during the first half, one acquisition completed after the fiscal second quarter, with plans for at least three to four more in the second half.
Total debt outstanding-- Total debt outstanding was $645.6 million as of June 30, 2025.
Liquidity-- $219 million total liquidity as of the fiscal second quarter, including $112.9 million in cash and $106 million in availability as of June 30, 2025; ABL increased by $50 million subsequent to the fiscal second quarter end.
Return on invested capital (ROIC)-- 34.6% ROIC for the fiscal second quarter, materially above cost of capital.
Write-offs-- $2 million in unsuccessful new product development in the fiscal second quarter, not excluded from adjusted EBITDA.
Regional and product strength-- Sequential and year-over-year growth across North and South Rockies, South Atlantic, South Central, Ohio River Valley, air compressors, and US safety services.
Summary
DXP Enterprises(DXPE -7.48%) achieved new record levels across multiple financial metrics in the fiscal second quarter ended June 30, 2025, reflecting sales expansion supported by both organic growth and recent acquisitions, highlighting an adjusted EBITDA margin of 11.5% for the quarter and a record service center sales performance. Strategic investments and an active acquisition pipeline were cited as integral to broadening diversification. The backlog for Innovative Pumping Solutions in energy reached its highest level ever in the fiscal second quarter, signaling potential strong project revenues for the next nine to twelve months.
Kent Yee stated, "Average daily sales during [the quarter] went from $7.81 million per day in April to $8.37 million per day in June."
The company cited a sequential decline in July, with estimated average daily sales falling to $7.25 million per day.
Segment operating income margins remained at or above 14% for five consecutive quarters through the fiscal second quarter.
Management expects to finalize at least three to four additional acquisitions in the second half of 2025.
SG&A increases were attributed to business growth, merit, and pay raises in the fiscal second quarter, while remaining lower as a percentage of sales sequentially and year-over-year.
Recent working capital growth in the fiscal second quarter was partly attributed to completed acquisitions.
No material customer or macroeconomic headwinds were reported, with backlog and bookings remaining robust.
Industry glossary
Adjusted EBITDA: Earnings before interest, taxes, depreciation, and amortization, excluding certain non-recurring items, and reflecting management's view of core operating performance.
ABL (Asset-Based Lending): A revolving credit facility secured by company assets, typically used for working capital needs and liquidity augmentation.
Operating leverage: The degree to which a firm's operating income grows in response to higher sales, reflecting fixed-to-variable cost dynamics.
Backlog: Value of unfulfilled customer orders currently on the books, indicating future revenue visibility.
ROIC (Return on Invested Capital): A profitability metric measuring net operating profit after tax relative to the capital invested in the business.
Full Conference Call Transcript
David Little, our Chairman and CEO, to provide his thoughts and a separate summary, excuse me, of our second quarter performance and financial results. David?
David Little: Good morning, and thank you, Kent. Thanks to everyone for joining us today on our fiscal 2025 second quarter conference call. DXP delivered another quarter of strong results with sequential growth of 4.7% and year-over-year growth of 11.9%. I want to thank our DX people for their passion and dedication to support our customers in delivering these impressive results. We are pleased to see DXP's performance continue throughout Q2 and remain at record levels throughout 2025. This allows us to achieve another quarter of both sales growth and 11% plus adjusted EBITDA margins. Overall, we had a great second quarter and continue to have the momentum for 2025. We are establishing new highs for DXP and look forward to 2025.
The 2025 highlights solid DXP execution and our ability to grow organically through and through acquisitions. We continue to execute our acquisition strategy, adding two rotating equipment acquisitions during the first half and one after the quarter end. We continue to execute our goals to diversify the business with new products, new industries served, and geographical expansions. Our consistent improvement in profitability speaks to our relentless drive to center our strategy around our customers and remain customer-driven experts while creating a win-win for all stakeholders. Thanks to our growth strategies and operational improvements, we continue to build on positive financial results in the second quarter.
While performing for our customers, we remain highly focused on providing the expertise and service our customers have come to expect from DXP. DX people you can trust. We strive to be credible, reliable, and customer-driven every day. I personally want to thank all our DXP stakeholders, in particular, all our DX people for their determination and hard work as we continue to grow and improve the business and achieve new sales highs and profits for the business. We are building the next chapter for DXP, which will define us as the best-in-class industrial business by being technical experts, providing customer-driven solutions, and being fast and convenient.
As to our financial results, I will begin today with some perspective on our second quarter and thoughts on the remainder of 2025. Kent will then take you through the key financial details after my remarks, and after his prepared comments, we will open for Q&A. In terms of our financial results, the second quarter results resulted in an adjusted EBITDA of $57.3 million or 11.5% of sales and diluted earnings per share of $1.43. A strong quarter that we will look to build from and continue to increase sales, profitability, and cash flow.
As we move into the second half of the year, we remain confident that our well-balanced business, strong balance sheet, exceptional teams, improved capabilities, and robust acquisition pipeline position us well to navigate the current environment and achieve continued success. Total DXP sales for Q2 increased 11.9% year-over-year and 4.7% sequentially or were $498.7 million or an average of $7.9 million per business day for the second quarter. On a year-over-year basis, gross profit margin increased 72 basis points and selling, general, and administrative expenses decreased 11 basis points as a percent of sales, helping us increase profit margins and our EBITDA margins. Thank you to the 3,193 DX people for your hard work and dedication.
We welcome our new acquisitions, Arroyo Process Equipment, McBride, and Moores Pump. And DXP continues to hire additional DX people for growth. In terms of Q2 segment financial results, innovative pumping solutions led the way, growing sales 27.5% year-over-year, followed by service centers growing 10.8% year-over-year, and supply chain services essentially flat year-over-year. In terms of IPS or Innovative Pumping Solutions, both our energy and our DXP water continue to perform. During Q2, our energy business is up 37.3% year-over-year and anticipated to ramp as we approach Q3, driven by some selected projects. Our DXP water platform continues to grow sequentially with Q2 2025 coming in as the eleventh consecutive quarter of sequential sales growth.
Our Q2 average IPS energy backlog continues to stay ahead of all averages going back to 2015 and is at an all-time high. In Q2, we have meaningful bookings in the month of April and May similar to January and March during the first quarter. This continues to signal that we should have strong energy project revenues over the next nine to twelve months. We are continuing to get bookings for both our energy and water project work, and we feel comfortable delivering strong sales performance in 2025. Our highly engineered innovative pumping solutions, modular fabricated systems, and manufacturing new pumps for our PumpWorks brand are forging a path forward with sales growth and elevated brand recognition.
Albeit without a few bumps as DXP wrote off $2 million in two unsuccessful new product developments in Q2. In terms of service centers, our performance reflects a multiple product category approach and our ongoing investment and progress on internal growth initiatives against the mix and evolving end market dynamics. A few growth initiatives that are helping DXP grow percentage over the last several years include our technical products like automation, new pump brands for water and industrial markets, process equipment, and filtration. New markets like water, air compressors, data centers, data centers need pumps, water, power, cooling, filtration, products we handle. We have added an e-commerce channel for the generation that wants to buy pumps and parts electronically.
National accounts, preferred pricing agreements, increase recurring revenues with service and parts agreements. Service nature within service centers allows us to continue to remain resilient and continue to experience consistent sales performance. Adding geography like Florida, and training and adding sales professionals has helped grow sales. From a regional perspective, regions that continue to experience year-over-year growth include the North and South Rockies, Ohio River Valley, South Atlantic. Also seen strength in our air compressors, and our US safety services division is always great to see. Supply chain services sales increased 3.3% sequentially and year-over-year remained flat at $6.4 million. In the supply chain business, all pricing is electronic with slow approval processes.
Causes price adjustments for inflation or tariffs to take longer to get implemented. That said, SES added a large contract that lost money as sales ramped up in Q2 and is now above breakeven in July. The contract will be 20 plus million as sales ramp up over the next twelve months. Several other small wins are being implemented. So we look forward to SCS having a much better 2025. A special thanks to our DX people who have stayed on top of supplier product increases, labor cost, and overall efficiencies. Overall, DXP produced adjusted EBITDA of $57.3 million adjusted EBITDA margin of 11.5%, which reflects the operating leverage we expect to get with sales growth.
Regarding capital allocation, we continue to make strategic investments to fuel and diversify DXP through acquisitions. During the quarter, we completed one acquisition, McBride Machinery, and completed another acquisition after the quarter, Moores Pump and Service. Again, let me thank all our DXP stakeholders, particularly all our DXP people for their continued efforts and adaptability as we grow and evolve DXP into a more diversified and less cyclical business. Let me conclude my remarks by saying that I am encouraged with our continued sequential improvement in sales and profitability. We are driving growth and improvements at DXP. We look forward to navigating and working through the remainder of fiscal 2025.
We continue to build our capabilities to provide technical set of proxies services in all our markets which makes DXP unique in our industry and gives us ways to help our customers win. Finally, I'd like to thank our DX people for continuing to maintain 11% plus adjusted EBITDA margins and move towards a goal of 12% plus while hitting a new quarter sales high in Q2. Q2 was another great quarter as we continue to have success in 2025. With that, I will now turn to Kent to review our financials in more detail.
Kent Yee: Thank you, David, and thank you to everyone for joining us for our review of our second quarter 2025 financial results. Q2 financial performance reflects DXP's ability to continue to successfully navigate through the market and execute and create value for all our stakeholders. Our second quarter results also reflect a new record high sales watermark along with a new all-time high in adjusted EBITDA margins.
As it pertains specifically to our second quarter, DXP's second quarter financial results reflect another record service center sales performance, at $339.7 million, continued strength in year-over-year sales growth within IPS growing 27.5%, continued gross margin strength with margins improving to 31.65%, and consistent operating leverage leading to a record adjusted EBITDA margins at 11.5%. Total sales for the second quarter increased 4.6% sequentially to $498.7 million. Acquisitions that have been with DXP for less than a year contributed $24.6 million in sales during the quarter. Average daily sales for the second quarter were $7.92 million per day, versus $7.57 million per day in Q1 and $6.96 million per day in Q2 2024.
Adjusting for acquisitions, average daily sales were $7.53 million per day for 2025 versus $6.6 million per day during 2024. That said, the average daily sales trends during the quarter went from $7.82 million per day in April to $8.4 million per day in June, reflecting the typical quarter-end push as we close out the second quarter. In terms of our business segments, Innovative Pumping Solutions grew 8.5% sequentially and 27.5% year-over-year. This was followed by service centers growing 3.9% sequentially and 10.8% year-over-year. Supply chain services grew 3.3% sequentially and declined 0.4% year-over-year or essentially flat. Innovative Pumping Solutions continued to experience increases in energy-related bookings and backlog, as well as water and wastewater bookings and backlog.
Our Q2 energy-related average backlog grew 4.9% over our Q1 average backlog and continues to be ahead of all our averages. That said, as we mentioned in Q1, we do have a large project in our backlog. Excluding this project, our backlog is up 6.6% from Q1. The conclusion continues to remain that we are trending meaningfully above all notable sales levels and our backlog continues to grow, even excluding the impacts of unique or large projects. Our DXP water platform experienced our eleventh consecutive quarter of sequential sales growth, growing to $48.7 million. And we look for this to continue as we move through 2025.
We also see strength in our IPS water backlog as it continues to grow due to a combination of organic and acquisition additions. In terms of our service centers, sales grew 3.9% sequentially and 10.8% year-over-year. DXP regions that experienced sequential as well as year-over-year sales growth include the North and South Rockies, South Central, South Atlantic, and Ohio River Valley. From a product and geographic perspective, our air compressor and US safety service also experienced sequential and year-over-year sales growth. From a segment operating income perspective, we have had five consecutive quarters of 14% or greater in segment operating income margins.
We will look for this to continue as we still believe there are regions that enhance or become more consistent in their operating income margins. Supply chain services performance primarily reflects a 3.3% increase sequentially and slight decline year-over-year, essentially flat. As David mentioned in Q1 and his comments, SCS is in the process of ramping a new customer. We look for other customer additions as we move through 2025. Demand for SCS services is increasing as customers look for inefficiency, and we anticipate current and future wins to start showing in 2025. Our SG&A for the quarter increased $11.4 million from Q2 2024 and $2.1 million from Q1 of this year to $111.8 million.
The increase reflects the growth in the business and associated incentive compensation and DXP investing in its people through merit and pay raises. However, SG&A as a percentage of sales decreased 12 basis points year-over-year to 22.42% of sales and decreased sequentially 60 basis points from Q1 of this year. Turning to EBITDA, Q2 2025 adjusted EBITDA was $57.3 million. Adjusted EBITDA margins were 11.5%. As discussed in Q1, we expect this to pick up and margins have improved as we move through 2025. We continue to benefit from fixed cost SG&A leverage we experience as we grow sales. This translated into 1.6 times operating leverage. In terms of EPS, our net income for Q2 was $23.6 million.
Our earnings per diluted share for Q2 was $1.43 per share versus $1 per share last year. This primarily reflects the growth in sales as well as an improvement in gross margins from Q2 2024 to Q2 2025. Turning to the balance sheet and cash flow. In terms of working capital, our working capital increased $23.8 million from March and $58 million from December to $349 million. As a percentage of the last twelve months sales, this amounted to 18.2%. This is an uptick from where we have been and $6 million of the increase since March is associated with our recent acquisitions.
We will continue to grow into the working capital as a percentage of sales as we move into 2025 with slight offsets as we remain acquisitive and add the associated balance sheets, but not a full year of sales and earnings. In terms of cash, we had $112.9 million in cash on the balance sheet as of June 30. This is a decrease of $1.4 million compared to the end of Q1 and does not reflect the acquisition of Moores Pumping Services, which we closed after the quarter. CapEx in the second quarter was $10.3 million or a decrease of $9.6 million compared to Q1 and a $1.5 million increase versus 2024. Our facilities and operations for our employees.
As we move forward, we will continue to invest in the business as we focus on growth. That said, over the short to medium term or the next one to two quarters, we should see CapEx lessen as we finish out 2025. Turning to free cash flow. Free cash flow for the second quarter was $8.3 million versus $5.9 million in 2024. This does reflect improvements in profitability along with elevated CapEx, which is primarily growth-oriented, highly controllable. Additionally, we continue to focus on tightly managing our capital projects which we see as an opportunity to further generate and optimize cash flow.
Return on invested capital or ROIC at the end of the second quarter was 34.6%, and continues to be measurably above our cost of capital and reflects the improvements in EBITDA and operating leverage inherent within the business. As of June 30, our fixed charge coverage ratio was 2.02 to 1, and our secured leverage ratio was 2.4 to 1 with a covenant EBITDA for the last twelve months of $221.1 million. Total debt outstanding as of June 30 was $645.6 million. In terms of liquidity, as of the second quarter, we were undrawn on our ABL with $28.7 million in letters of credit. With $106 million of availability and liquidity of $219 million, including $112.9 million in cash.
Subsequent to the quarter end, we successfully increased our ABL by $50 million. DXP is poised to execute on our acquisition strategy and would anticipate at minimum closing another three to four acquisitions during the second half of the year. In terms of acquisitions, we have closed two acquisitions during 2025 and one on July 1. DXP's acquisition pipeline continues to remain active and robust and the market continues to present compelling opportunities. That said, we remain comfortable with our ability to execute on our pipeline and valuations continue to remain reasonable. In summary, we continue to remain excited about the future.
We will continue to keep our eyes focused on those things we can control and what is ahead of us. We are excited because there is still substantial value embedded in DXP. We look forward with great confidence to a future of sustained growth and market outperformance. I will now turn the call over for questions.
Operator: At this time, I would like to remind everyone in order to ask a question, please press star then the number one on your telephone keypad. First question comes from the line of Zach Marriott with Stephens Inc. Your line is open.
Zach Marriott: Good morning, and thank you for taking my questions.
David Little: Morning, Zach.
Zach Marriott: Is there any color you can share on daily sales trends by month for both Q2 and Q3 thus far?
Kent Yee: Yep. Sure, Zach. And, I'll back up and once again just walk through Q2, and then, we have essentially a sales flash for July, so an estimate for July. But you know, April, as I mentioned in my comments, were $7.81 million. May was $7.55 million. June was $8.37 million. And then July, we have it $7.25 million per day.
Zach Marriott: Much appreciated. And then is there anything that drives a meaningful margin difference, whether up or down, when comparing 2Q and 3Q?
Kent Yee: I mean, we still continue to benefit from, you know, our acquisitions. And, and then being accretive from a margin perspective, meaning obviously, the profitability, specifically within water, wastewater, and some of our just industrial rotating equipment acquisitions. Is at a higher, you know, gross and thus EBITDA margin basis. So, you know, to the degree and extent, we're rolling those ones in as well as rolling new ones in, we benefit from a margin perspective.
Zach Marriott: Great. Thanks for the color. And then I know you touched on the M&A pipeline. So my last one is going to be are you seeing much hesitation to spend from customers due to macro uncertainty or still tariff uncertainty or anything?
Kent Yee: You know, I'm not necessarily sure how that's tied to acquisitions, but I'll let David address kind of the macro environment. I think he probably still has some thoughts as he did in Q1 surrounding tariffs and the impact to our environment and our customers and suppliers. David?
David Little: So maybe I'll tie acquisitions in there in a sense that we typically like to do acquisitions of companies that are well run and they're growing their business. So, we're not seeing anything fall off a cliff or anything as far as acquisitions. Or we wouldn't do them. So and then I really don't think so when we look at our billings, our backlog is as high as it's ever been, our bookings to billings is in excess of one. It's always billing, bookings are greater. So we're not seeing anything. We read a little bit about things continuing to grow, but maybe at a slower pace. But we're really not seeing that.
Operator: Thank you. I will turn the call back over to David Little, CEO, for closing remarks.
David Little: Sure. Well, thanks to all our shareholders and all our employees and all our stakeholders, including our suppliers, etcetera. It's pretty neat to watch our suppliers start coming to us and people wanting us to handle their products and etcetera because we are a growth-oriented company, and they want to grow their business also. So I think that's pretty positive. I think as we look at acquisitions, we've targeted some acquisitions that do have a lot higher EBITDA margins, etcetera. So that's helping us along with our own internal push to increase our value to our customers and increase the amount we can make by increasing that value. So I'm very pleased with that.
Expenses are pretty flat, but really that's based on the fact that we continue to grow. And so as a percent of sales, we'd like to see that come down a bit. Everything we're doing is working. I was almost kidding about how well that our new product through PumpWorks is working. And so to say that we had a couple of projects that didn't pan out, you know, a couple million dollar write-off is almost an inside joke. Because that's pretty minor in the scheme of things. We didn't include that in any kind of EBITDA adjustment. It's just normal course of doing business. But nonetheless, I threw that out there.
We have a lot of our big project is international oriented. So we have a lot of activity international in the energy business, and so we're investing pretty heavy into that and look to continue to do so. The other pieces of our business, whether municipalities or air compressors, that's all been wildly successful. Our normal business is having organic growth, and so that's always really, really nice. In fact, if DXP has 10% organic growth overall, then we're basically going to kick ass. So with that, again, I'd like to thank all the stakeholders and I'm pleased and the future looks bright. So here we go.
Kent Yee: Thanks.
Operator: Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect.