DXP ENTERPRISES INC 10-Q

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management discussion and analysis ("MD&A") of the financial condition and results of operations of DXP Enterprises, Inc. together with its subsidiaries (collectively "DXP," "Company," "us," "we," or "our") for the three months ended March 31, 2026 should be read in conjunction with our previous Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q, and the consolidated financial statements and notes thereto included in such reports. The Company's consolidated financial statements are prepared in accordance with U.S. GAAP. DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q (this "Report") contains statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements include without limitation those about the Company’s expectations regarding the Company’s business, the Company’s future profitability, cash flow, liquidity, and growth. Such forward-looking statements can be identified by the use of forward-looking terminology such as "believes", "expects", "may", "might", "estimates", "will", "should", "could", "would", "suspect", "potential", "current", "achieve", "plans" or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. Any such forward-looking statements are not guarantees of future performance and may involve significant risks and uncertainties, and actual results may vary materially from those discussed in the forward-looking statements or historical performance as a result of various factors. These factors include, but are not limited to, the effectiveness of management's strategies and decisions; our ability to implement our internal growth and acquisition growth strategies; general economic and business conditions specific to our primary customers; changes in government regulations; our ability to effectively integrate businesses we may acquire; new or modified statutory or regulatory requirements; availability of materials and labor; inability to obtain or delay in obtaining government or third-party approvals and permits; non-performance by third parties of their contractual obligations; unforeseen hazards such as weather conditions, acts of war or terrorist acts and the governmental or military response thereto; cyber-attacks adversely affecting our operations; other geological, operating and economic considerations and declining prices and market conditions, including reduced oil and gas prices and supply or demand for maintenance, repair and operating products, equipment and service; decreases in oil and natural gas industry capital expenditure levels, which may result from decreased oil and natural gas prices or other factors; our ability to manage changes and the continued health or availability of management personnel; and our ability to obtain financing on favorable terms or amend our credit facilities, as needed. This Report identifies other factors that could cause such differences. We cannot assure that these are all of the factors that could cause actual results to vary materially from the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in "Risk Factors", in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on February 26, 2026. We assume no obligation and do not intend to update these forward-looking statements. Unless the context otherwise requires, references in this Report to the "Company", "DXP", "we" or "our" shall mean DXP Enterprises, Inc., a Texas corporation, together with its subsidiaries. NON-GAAP FINANCIAL MEASURES In an effort to provide investors with additional information regarding our results of operations as determined by U.S. GAAP, we disclose non-GAAP financial measures. The non-GAAP financial measures we provide in this report should be viewed in addition to, and not as an alternative for, results prepared in accordance with U.S. GAAP. Our primary non-GAAP financial measures are organic sales ("Organic Sales"), sales per business day ("Sales per Business Day"), organic sales per business day ("Organic Sales per Business Day"), free cash flow ("Free Cash Flow"), earnings before interest, taxes, depreciation and amortization ("EBITDA") adjusted EBITDA ("Adjusted EBITDA"), EBITDA Margin, and Adjusted EBITDA Margin. The non-GAAP financial measures presented may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures in the same way. These measures are not substitutes for their comparable U.S. GAAP financial measures. 19 Management uses these non-GAAP financial measures to assist in comparing our performance on a consistent basis for purposes of business decision making by removing the impact of certain items that management believes do not directly reflect our underlying operations. Management believes that presenting our non-GAAP financial measures are useful to investors because it (i) provides investors with meaningful supplemental information regarding financial performance by excluding certain items, (ii) permits investors to view performance using the same tools that management uses to budget, make operating and strategic decisions, and evaluate historical performance, and (iii) otherwise provides supplemental information that may be useful to investors in evaluating our results. We believe that the presentation of these non-GAAP financial measures, when considered together with the corresponding U.S. GAAP financial measures and the reconciliations to those measures, provides investors with additional understanding of the factors and trends affecting our business than could be obtained absent these disclosures. Refer to the Non-GAAP Financial Measures and Reconciliation section below for detailed reconciliations of our non-GAAP financial measures. GENERAL BUSINESS OVERVIEW General DXP Enterprises, Inc. is a business-to-business distributor of MRO products and services to a variety of customers in different end markets across North America and Dubai. Additionally, we fabricate, remanufacture, and assemble custom pump packages along with manufacturing branded private label pumps. CURRENT MARKET CONDITIONS AND OUTLOOK The global economy continues to experience elevated levels of volatility and uncertainty, driven by a combination of geopolitical developments and macroeconomic factors. Recent imposition of new and expanded tariffs have further contributed to disruptions in the capital markets and global supply chains. These developments may impact the Company’s operations, financial condition, and results of operations. The Company is actively monitoring economic conditions in the U.S. and internationally, including the potential ramifications of evolving trade policies, changes in interest rates, inflationary pressures, and the risk of a global or regional economic recession. In response to these factors, the Company is continuously reviewing various strategies designed to mitigate certain adverse effects of changing inflationary conditions and supply chain challenges, while continuing to maintain market price competitiveness. Historically, the Company's broad and diverse customer base and the generally non-discretionary nature of its products have provided a degree of resilience during periods of economic contraction in the industrial MRO market. However, the ultimate impact of ongoing macroeconomic conditions, including recent tariff-related developments, remains uncertain and cannot be predicted at this time. For further discussion of the Company's risks and uncertainties, see Part I, Item 1A: Risk Factors in the Company’s 2025 Form 10-K. Service Centers and Innovative Pumping Solutions Segments The replacement and mission-critical nature of our products and services within the Company's Service Centers and Innovative Pumping Solutions business segments and industrial and manufacturing environments and processes drives a demand and outlook that are correlated with global, national and regional industrial production, capacity utilization and long-term GDP growth. For the three months ended March 31, 2026, we had approximately $456.6 million in sales in our Service Centers and Innovative Pumping Solutions segments, an increase of approximately 10.5 percent compared to the three months ended March 31, 2025. Our performance has been strengthened by our ability to maintain strong margins despite price increases from vendors and suppliers. During the three months ended March 31, 2026, $5.7 million in sales in our Service Centers (SC) segment and $35.0 million in sales in our Innovative Pumping Solutions (IPS) segment were associated with acquisition sales. Supply Chain Services Segment For the three months ended March 31, 2026, we had approximately $65.0 million in sales in our Supply Chain Services (SCS) segment, an increase of approximately 2.7 percent compared to the three months ended March 31, 2025. 20 Matters Affecting Comparability Our results of operations are not directly comparable on a year-over-year basis due to various prior acquisitions and the varying size and number of acquisitions in any comparable period. Accordingly, the results of acquisitions are included subsequent to their respective acquisition dates and the Company provides detail around Organic and Acquisition Sales as defined in our Key Business Metrics. During the three months ended March 31, 2026, acquisition sales were $40.7 million compared to $31.1 million for the three months ended March 31, 2025. Key Business Metrics We regularly monitor several financial and operating metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. Our key non-GAAP business metrics may be calculated in a different manner than similarly titled metrics used by other companies. See “Non-GAAP Financial Measures and Reconciliations” for additional information on non-GAAP financial measures and a reconciliation to the most comparable U.S. GAAP measures. Three Months Ended March 31, 2026 2025 Sales by Business Segment Service Centers $ 337,976 $ 327,075 Innovative Pumping Solutions 118,660 86,182 Supply Chain Services 65,022 63,312 Total DXP Sales $ 521,658 $ 476,569 Acquisition Sales $ 40,745 $ 31,112 Organic Sales $ 480,913 $ 445,457 Business Days 63 63 Sales per Business Day $ 8,280 $ 7,565 Organic Sales per Business Day $ 7,634 $ 7,071 Gross Profit $ 168,606 $ 150,265 Gross Profit Margin 32.3 % 31.5 % Income from Operations $ 42,474 $ 40,515 Income from Operations Margin 8.1 % 8.5 % Net Income $ 19,978 $ 20,589 Net Income Margin 3.8 % 4.3 % EBITDA $ 55,119 $ 50,967 EBITDA Margin 10.6 % 10.7 % Adjusted EBITDA $ 57,812 $ 52,519 Adjusted EBITDA Margin 11.1 % 11.0 % Net cash provided by operating activities $ 29,569 $ 2,973 Free Cash Flow $ 26,275 $ (16,941) 21 Organic Sales and Acquisition Sales We define and calculate organic sales to include locations and acquisitions under our ownership for at least twelve months. "Acquisition Sales" are sales from acquisitions that have been under our ownership for less than twelve months and are excluded in our calculation of Organic Sales. Business Days "Business Days" are days of the week, excluding Saturdays, Sundays, and holidays, that our locations are open during the year. Depending on the location and the season, our branches may be open on Saturdays and Sundays; however, for consistency, those days have been excluded from the calculation of Business Days. Sales per Business Day We define and calculate Sales per Business Day as sales divided by the number of Business Days in the relevant reporting period. Organic Sales per Business Days We define and calculate Organic Sales per Business Day as Organic Sales divided by the number of Business Days in the relevant reporting period. EBITDA and Adjusted EBITDA We define and calculate EBITDA as Net income attributable to DXP Enterprises, Inc., plus interest, taxes, depreciation, and amortization. We define and calculate Adjusted EBITDA as Net income attributable to DXP Enterprises, Inc., plus interest, taxes, depreciation, and amortization plus stock-based compensation expense and all other non-cash charges, adjustments, and non-recurring items. We identify the impact of all other non-cash charges, adjustments and non-recurring items because we believe these items do not directly reflect our underlying operations. EBITDA Margin and Adjusted EBITDA Margin We define and calculate EBITDA Margin as EBITDA divided by sales. We define and calculate Adjusted EBITDA Margin as Adjusted EBITDA divided by sales. Free Cash Flow We define and calculate free cash flow as net cash (used in) provided by operating activities less purchases of property and equipment. 22 RESULTS OF OPERATIONS (in thousands, except percentages and per share data) DXP is organized into three business segments: Service Centers, Innovative Pumping Solutions, and Supply Chain Services. The Service Centers are engaged in providing MRO products, equipment and integrated services, including technical expertise and logistics capabilities, to industrial customers with the ability to provide same day delivery. The Service Centers provide a wide range of MRO products and services in the rotating equipment, bearing, power transmission, hose, fluid power, metal working, industrial supply and safety product and service categories. The IPS segment provides products and services to the water and wastewater market and fabricates and assembles integrated pump system packages custom made to customer specifications, remanufactures pumps, and manufactures branded private label pumps. The SCS segment provides a wide range of MRO products and manages all or part of our customers' supply chain function, and inventory management. Three Months Ended March 31, 2026 compared to Three Months Ended March 31, 2025 Three Months Ended March 31, 2026 % 2025 % Sales $ 521,658 100.0% $ 476,569 100.0% Cost of sales 353,052 67.7% 326,304 68.5% Gross profit 168,606 32.3% 150,265 31.5% Selling, general and administrative expenses 126,132 24.2% 109,750 23.0% Income from operations 42,474 8.1% 40,515 8.5% Interest expense 16,443 3.2% 14,660 3.1% Other (income) expense, net (594) (0.1)% (1,318) (0.3)% Income before income taxes 26,625 5.1% 27,173 5.7% Provision for income tax expense 6,647 1.3% 6,584 1.4% Net income $ 19,978 3.8% $ 20,589 4.3% Earnings per share: Basic $ 1.28 $ 1.31 Diluted $ 1.22 $ 1.25 23 The following tables sets forth the disaggregation of revenue from sales associated with acquisitions for the three months ended March 31, 2026 and 2025 (in thousands) : Sales Acquisition Sales Organic Sales Three Months Ended March 31, 2026 Service Centers $ 337,976 $ 5,711 $ 332,265 Innovative Pumping Solutions 118,660 35,034 83,626 Supply Chain Services 65,022 — 65,022 Total Sales $ 521,658 $ 40,745 $ 480,913 Three Months Ended March 31, 2025 Service Centers $ 327,075 $ 17,941 $ 309,134 Innovative Pumping Solutions 86,182 13,171 73,011 Supply Chain Services 63,312 — 63,312 Total Sales $ 476,569 $ 31,112 $ 445,457 $ Change Service Centers $ 10,901 $ (12,230) $ 23,131 Innovative Pumping Solutions 32,478 21,863 10,615 Supply Chain Services 1,710 — 1,710 Total $ Change $ 45,089 $ 9,633 $ 35,456 % Change Service Centers 3.3 % (68.2) % 7.5 % Innovative Pumping Solutions 37.7 % 166.0 % 14.5 % Supply Chain Services 2.7 % N/A 2.7 % Total % Change 9.5 % 31.0 % 8.0 % SALES. Sales for the three months ended March 31, 2026 increased $45.1 million, or 9.5 percent, to approximately $521.7 million from $476.6 million for the prior year's corresponding period, of which recent acquisitions contributed $40.7 million. Additionally, the overall increase in sales was the result of an increase in sales in our SC, IPS, and SCS segments of $10.9 million, $32.5 million, and $1.7 million, respectively. The fluctuations in sales are further explained in our business segment discussions below. Service Centers segment. Sales for the SC segment increased $10.9 million, or 3.3 percent, for the three months ended March 31, 2026, compared to the prior year's corresponding period. Excluding the impact of recent acquisitions, sales grew $23.1 million, this sales increase was the result of increases within our Ohio River Valley, California, South East, and Rockies regions as well as our metal working division totaling $24.7 million due to an increase in shipped product revenue during the period, offset by decreases in sales within our South West region of $4.1 million. Sales from recent acquisitions contributed $5.7 million during the period compared to $17.9 million for the three months ended March 31, 2025. Innovative Pumping Solutions segment. Sales for the IPS segment increased $32.5 million, or 37.7 percent, for the three months ended March 31, 2026, compared to the prior year's corresponding period. This sales increase was the result of increases within our water and wastewater division and increased production contracts totaling $10.6 million. Sales from recent acquisitions contributed $35.0 million during the period as compared to $13.2 million for the three months ended March 31, 2025. Supply Chain Services segment. Sales for the SCS segment increased by $1.7 million, or 2.7 percent, for the three months ended March 31, 2026, compared to the prior year's corresponding period. This was primarily due to the onboarding of new customers and their related facilities, partially offset by decreased activity with existing customers. 24 GROSS PROFIT. Gross profit margin for the three months ended March 31, 2026 was 32.3 percent compared to 31.5 percent for the prior year's corresponding period. The gross profit margin for the three months ended March 31, 2026 was positively impacted by 79 basis points due to recent acquisitions and continuing margin expansion efforts. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A"). SG&A for the three months ended March 31, 2026 increased by $16.4 million, or 14.9 percent, to $126.1 million from $109.8 million for the prior year's corresponding period. The increase in SG&A is primarily the result of increased payroll related costs, depreciation and amortization, rent and professional fees. OPERATING INCOME. Operating income for the first quarter of 2026 increased by $2.0 million to $42.5 million, from $40.5 million in the prior year's corresponding period. This increase in operating income was primarily driven by increases in our SC segment. INTEREST EXPENSE. Interest expense for the first quarter of 2026 increased $1.8 million compared to the prior year's corresponding period. This increase was primarily due to the Company refinancing its Term Loan B during the fourth quarter of 2025. INCOME TAXES. Our effective tax rate for continuing operations was 25.0 percent for the three months ended March 31, 2026, compared to 24.2 percent for the three months ended March 31, 2025. Compared to the U.S. statutory rate for the three months ended March 31, 2025, the effective tax rate increased slightly, primarily due to discrete items, including a decrease in tax benefits related to stock-based compensation vested during the period, net of amounts limited by Section 162(m), a lower benefit from research and development tax credits, and an increase in non-deductible expenses. NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS Organic Sales and Acquisition Sales We define and calculate organic sales to include locations and acquisitions under our ownership for at least twelve months. "Acquisition Sales" are sales from acquisitions that have been under our ownership for less than twelve months and are excluded in our calculation of Organic Sales. The following table sets forth the reconciliation of Acquisition Sales and Organic Sales to the most comparable U.S. GAAP financial measure (in thousands) : Three Months Ended March 31, 2026 2025 Sales by Business Segment Service Centers $ 337,976 $ 327,075 Innovative Pumping Solutions 118,660 86,182 Supply Chain Services 65,022 63,312 Total DXP Sales $ 521,658 $ 476,569 Acquisition Sales $ 40,745 $ 31,112 Organic Sales $ 480,913 $ 445,457 25 EBITDA, Adjusted EBITDA, EBITDA Margin, and Adjusted EBITDA Margin We define and calculate EBITDA as Net income attributable to DXP Enterprises, Inc., plus interest, taxes, depreciation, and amortization. We define and calculate Adjusted EBITDA as Net income attributable to DXP Enterprises, Inc., plus interest, taxes, depreciation, and amortization plus stock-based compensation expense and all other non-cash charges, adjustments, and non-recurring items. We identify the impact of all other non-cash charges, adjustments and non-recurring items because we believe these items do not directly reflect our underlying operations. We define and calculate EBITDA Margin as EBITDA divided by sales. We define and calculate Adjusted EBITDA Margin as Adjusted EBITDA divided by sales. The following table sets forth the reconciliation of EBITDA, EBITDA Margin, Adjusted EBITDA, and Adjusted EBITDA Margin to the most comparable U.S. GAAP financial measure (in thousands) : Three Months Ended March 31, 2026 2025 Net income attributable to DXP Enterprises, Inc. $ 19,978 $ 20,589 Plus: Interest expense 16,443 14,660 Plus: Provision for income tax expense 6,647 6,584 Plus: Depreciation and amortization 12,051 9,134 EBITDA $ 55,119 $ 50,967 Plus: stock compensation expense 1,802 1,317 Plus: other non-recurring items (1) 891 235 Adjusted EBITDA $ 57,812 $ 52,519 Operating Income Margin 8.1 % 8.5 % Net Income Margin 3.8 % 4.3 % EBITDA Margin 10.6 % 10.7 % Adjusted EBITDA Margin 11.1 % 11.0 % (1) Other non-recurring items includes unique acquisition integration costs and other non-cash, non-recurring costs. Free Cash Flow We define and calculate free cash flow as net cash (used in) provided by operating activities less purchases of property and equipment. The following table sets forth the reconciliation of Free Cash Flow to the most comparable U.S. GAAP financial measure (in thousands) : Three Months Ended March 31, 2026 2025 Net cash provided by operating activities $ 29,569 $ 2,973 Less: purchases of property and equipment (3,294) (19,914) Free Cash Flow $ 26,275 $ (16,941) 26 LIQUIDITY AND CAPITAL RESOURCES General Overview We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. We continue to generate adequate cash from operating activities. We believe that our operating cash flow, cash on hand, and other sources of liquidity including our ABL and Term Loan B, will be sufficient to allow us to continue investing in the business including capital expenditures, strategic acquisitions and investments, paying interest and servicing debt, and repurchasing common stock when deemed appropriate. Our primary source of capital is cash flow from operations, supplemented as necessary by bank borrowings or other sources of debt and existing cash balances. As a distributor of MRO products and services, we require certain amounts of working capital to primarily fund inventories and accounts receivables. Additional cash is required for capital items for information technology, warehouse equipment, leasehold improvements, pump manufacturing and safety services equipment. We also require cash to pay our lease obligations, fund project work-in-process and to service our debt. Cash As of March 31, 2026, we had available cash of $213.4 million and credit facility availability of $153.3 million. We have a $185.0 million asset-backed line of credit (the "ABL Revolver"), partially offset by letters of credit of $31.7 million. We had no borrowings outstanding on our ABL Revolver as of March 31, 2026. Cash Flows The following table summarizes our net cash flows provided by and used in operating activities, investing activities and financing activities for the periods presented (in thousands) : Three Months Ended March 31, 2026 2025 Net Cash Provided by (Used in): Operating Activities $ 29,569 $ 2,973 Investing Activities (105,987) (30,065) Financing Activities (13,116) (7,083) Effect of Foreign Currency (868) 47 Net Change in Cash $ (90,402) $ (34,128) Operating Activities The Company generated $29.6 million of cash from operating activities during the three months ended March 31, 2026 compared to $3.0 million of cash generated during the prior year's corresponding period. The increase of $26.6 million was primarily due to income tax payments in 2025 compared to 2026. Investing Activities For the three months ended March 31, 2026, net cash used in investing activities was $106.0 million compared to a $30.1 million use of cash during the prior year’s corresponding period. This $75.9 million increase was primarily driven by increased acquisition activity during the three months ended March 31, 2026. Total consideration, was $102.7 million compared to $12.9 million for the three months ended March 31, 2025. 27 Financing Activities For the three months ended March 31, 2026, net cash used in financing activities was $13.1 million, compared to net cash used in financing activities of $7.1 million during the prior year’s corresponding period. The decrease was primarily due to the timing of shares withheld for taxes relating to shares vesting compared to prior corresponding period. We believe the Company has adequate funding to support its working capital needs within the business. Debt At March 31, 2026, our total outstanding debt was $844.7 million, or 62.3 percent of total capitalization (total debt plus shareholders' equity) of $1.4 billion. $843.8 million of this outstanding debt bears interest at various floating rates. For a further discussion of the Company's debt refer to Note 8. Long-Term Debt . Liquidity We believe our cash generated from operations will meet our normal working capital needs during the next twelve months. However, we may require additional debt outside of our credit facilities or equity financing to fund potential acquisitions. Such additional financings may include additional bank debt or the public or private sale of debt or equity securities. In connection with any such financing, we may issue securities that substantially dilute the interests of our shareholders. The following table summarizes the amount of borrowing capacity under our ABL Revolver as follows (in thousands): March 31, 2026 December 31, 2025 Total borrowing capacity $ 185,000 $ 185,000 Less: Amount drawn — — Less: Outstanding letters of credit 31,731 31,472 Total amount available $ 153,269 $ 153,528 At March 31, 2026, the Company had $366.7 million of liquidity including $213.4 million in cash and $153.3 million in availability under the ABL Revolver. On July 1, 2025, the Company entered into an Increase Agreement (the “Increase Agreement”) to which the aggregate commitments under the Company's existing asset-based revolving credit facility (the "ABL Facility") were increased by $50 million. Following the effectiveness of the Increase Agreement, the total commitments under the ABL Facility increased from $135.0 million to $185.0 million. Free Cash Flow We believe Free Cash Flow is an important liquidity metric because it measures, during a given period, the amount of cash generated that is available to fund acquisitions, make investments, repay debt obligations, repurchase shares of the Company's common stock, and for other activities. Free Cash Flow is not a measure of liquidity under U.S. GAAP, and may not be defined and calculated by other companies in the same manner. Free Cash Flow should not be considered in isolation or as an alternative to net cash provided by operating activities. Free Cash Flow reconciles to the most directly comparable U.S. GAAP financial measure of cash flows from operations. 28 The following table sets forth the reconciliation of net cash provided by operating activities to Free Cash Flow (in thousands): Three Months Ended March 31, 2026 2025 Net cash provided by operating activities $ 29,569 $ 2,973 Less: purchases of property and equipment (3,294) (19,914) Free Cash Flow $ 26,275 $ (16,941) Uses of Liquidity Internally generated cash flows are the primary source of working capital and growth initiatives, including acquisitions and growth capital expenditures. The Company expects to continue to return excess capital to shareholders through share repurchases, when appropriate. Working Capital We monitor net working capital, which excludes cash and restricted cash, short-term debt obligations, and short-term operating leases. Net working capital as of March 31, 2026 was $379.6 million, an increase of $17.9 million compared to $361.7 million as of December 31, 2025. The increase was primarily due to sustained sales growth and acquisitions. Acquisitions For a discussion of the Company’s acquisitions refer to Note 12. Business Acquisitions . During March 31, 2026 and 2025, the Company invested $102.7 million and $12.9 million, respectively, in acquisitions. Capital Expenditures The Company's capital expenditures was $3.3 million and $19.9 million for the three months ended March 31, 2026 and 2025 respectively. This includes continued facility upgrades and enhancements, tools and equipment, and enhancements across the Company. DISCUSSION OF SIGNIFICANT ACCOUNTING AND BUSINESS POLICIES Critical accounting and business policies are those that are both most important to the portrayal of a company's financial position and results of operations, and require management's subjective or complex judgments. These policies have been discussed with the Audit Committee of the Board of Directors of DXP. The Company's unaudited condensed financial statements are prepared in accordance with U.S. GAAP. The accompanying unaudited Condensed Consolidated Financial Statements have been prepared on substantially the same basis as our annual Consolidated Financial Statements and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2025. For a more complete discussion of our significant accounting policies and business practices, refer to the consolidated Annual Report on Form 10-K filed with the SEC on February 26, 2026. The results of operations for the three months ended March 31, 2026 are not necessarily indicative of results expected for the full fiscal year. RECENT ACCOUNTING PRONOUNCEMENTS See Note 3 - Recently Issued Accounting Pronouncements to the Condensed Consolidated Financial Statements for information regarding recent accounting pronouncements. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. For quantitative and qualitative disclosures about market risk, see Item 7A, 'Quantitative and Qualitative Disclosures About Market Risk' of our Annual Report on Form 10-K for the year ended December 31, 2025. Our exposures to market risk have not changed materially since December 31, 2025. 29