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DXP ENTERPRISES INC (DXPE)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered strong growth: revenue $470.9M (+15.8% YoY), diluted EPS $1.29 (+37% YoY), Adjusted EBITDA $50.3M (+20% YoY), and EBITDA margin 10.4% (+40 bps YoY) .
  • Sequentially, sales per business day increased to $7.595M in Q4 from $7.390M in Q3; gross margin improved to ~31.6% vs ~30.9% in Q3, supported by mix shift toward higher-margin IPS Water and acquisitions .
  • Management raised its internal ambition from ≥10% to ~11% Adjusted EBITDA margin, citing mix, pricing and operational initiatives as drivers; backlog strength in IPS Water (+108% YoY) and energy points to 2025 revenue support .
  • No formal revenue/EPS guidance was provided; near-term catalysts include project backlog conversion (IPS energy project win anticipated to impact Q1/Q2 2025) and continued M&A execution; balance sheet was refinanced at -100 bps with incremental $105M cash for acquisitions .

What Went Well and What Went Wrong

What Went Well

  • Broad-based growth: Q4 sales $470.9M (+15.8% YoY), Adjusted EBITDA $50.3M (+20% YoY), Adjusted EPS $1.38 (+23% YoY) .
  • IPS strength: IPS revenue up 62% YoY in Q4 ($97.6M vs $60.3M) with improved operating margins; Water backlog up 108% YoY (39.5% organically), supporting 2025 visibility .
  • Strategic execution: Completed seven acquisitions in FY24; successfully refinanced Term Loan B (SOFR+3.75% vs +4.75%), raised $105M incremental capital; fully remediated material weaknesses .

Management quotes:

  • “Fiscal 2024 was another great year… strong performance… across all business segments.” — CEO David Little .
  • “We refinanced and repriced our Term Loan B… reducing interest costs by 100 basis points… raising an incremental $105 million.” — CFO Kent Yee .
  • “Our goal… changed to 11% [EBITDA margins]… pay is in alignment with those goals.” — CEO David Little (Q&A) .

What Went Wrong

  • SCS softness: Supply Chain Services revenue down slightly (-1.5% YoY for FY24) with customer facility closures and energy-related declines; Q4 SCS sales +1.9% YoY but segment remains a focus for new customer additions .
  • Higher SG&A: FY24 SG&A increased $44.3M, to 22.8% of sales (from 21.8%), reflecting acquisitions, merit raises, and personnel additions; operating income FY24 up only +4.8% YoY .
  • Free cash flow: Q4 FCF $22.7M, below prior-year Q4 ($37.3M) and below Q3 ($24.4M); capex step-up (growth-oriented) weighed on FCF conversion .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Revenue ($USD Millions)$407.0 $472.9 $470.9
Gross Profit ($USD Millions)$122.8 $146.1 $148.5
Gross Profit Margin %30.2% (122.8/407.0) 30.9% (146.1/472.9) 31.6% (148.5/470.9)
Operating Income ($USD Millions)$30.0 $39.6 $39.3
Operating Income Margin %7.4% 8.4% 8.3%
EBITDA ($USD Millions)$40.5 $48.2 $49.0
EBITDA Margin %10.0% 10.2% 10.4%
Adjusted EBITDA ($USD Millions)$41.9 $52.4 $50.3
Adjusted EBITDA Margin %10.3% 11.1% 10.7%
Net Income ($USD Millions)$16.0 $21.1 $21.4
Diluted EPS ($USD)$0.94 $1.27 $1.29
Adjusted Diluted EPS ($USD)$1.12 $1.43 $1.38

Segment sales and operating income:

Segment Sales ($USD Millions)Q4 2023Q3 2024Q4 2024
Service Centers$285.4 $316.8 $310.8
Innovative Pumping Solutions$60.3 $89.8 $97.6
Supply Chain Services$61.3 $66.3 $62.5
Total$407.0 $472.9 $470.9
Segment Operating Income ($USD Millions)Q4 2023Q3 2024Q4 2024
Service Centers$37.5 $46.2 $44.7
Innovative Pumping Solutions$8.6 $18.2 $15.2
Supply Chain Services$5.0 $5.6 $5.1
Total Segment OI$51.1 $69.9 $64.9

Key KPIs and balance sheet metrics (quarter):

KPIQ4 2023Q3 2024Q4 2024
Sales per Business Day ($USD Millions)$6.673 $7.390 $7.595
Acquisition Sales ($USD Millions)$2.8 $28.5 $34.8
Organic Sales ($USD Millions)$404.2 $444.4 $436.1
Free Cash Flow ($USD Millions)$37.3 $24.4 $22.7
Cash ($USD Millions)$173.1 $35.0 $148.3
Total Debt ($USD Millions, LT debt net)$520.7 $519.3 $621.7
Net Debt ($USD Millions)N/AN/A$500.6
Secured Leverage Ratio (Net Debt/EBITDA)N/A2.54x (LTM covenant EBITDA $200.7M) 2.4x (covenant EBITDA $206.2M)
Diluted Shares (mm)17.017 16.590 16.535

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Formal Revenue/EPS GuidanceFY2025 / Q1 2025None disclosedNone disclosedMaintained (no formal guidance)
Adjusted EBITDA Margin TargetFY2025≥10% achieved in FY23/FY24 (not formal guidance) ~11% target (management goal) Raised (goal)

Note: Management provided qualitative outlook (backlog strength, acquisitions, margin ambition) but no numeric revenue/EPS guidance ranges .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q4 2024)Trend
End-market diversificationReduced energy exposure; sequential growth; SC down YoY, IPS +53% YoY in Q2; leverage ratio ~2.64x FY24 mix: oil & gas 23%; growing water/wastewater and chemical; diversification cited as driver Strengthening
IPS Water & Energy backlogQ3: IPS +52% YoY; debt repriced; acquisitions fuel backlog IPS Water backlog +108% YoY (39.5% organic); energy backlog up 17.5% QoQ (8.7% ex large project) Strengthening
MarginsQ2 Adj. EBITDA margin 10.8%; Q3 11.1% EBITDA 10.4%, Adj. 10.7%; management aiming for ~11% Positive
Supply Chain ServicesQ2/Q3: modest declines or flat; customer closures Slight YoY decrease FY; focus on new customer additions and remote care model Mixed
Tariffs/Inflation/MacroNoted debt repricing and financing flexibility [20 not read]Inflation manageable (pass-through); tariffs a potential headwind; overall constructive demand Watch
M&A pipelineQ2: 4 acquisitions; Q3: 5 acquisitions; debt repriced to fund M&A FY24: 7 acquisitions; pipeline strong; 1–3 more by mid-2025 Active
Accounting remediation—Full remediation of material weaknesses; finance team build-out Resolved
Capital structureQ3: Term Loan B repriced; +$105M SOFR+3.75%, +$105M; liquidity $273.9M incl. cash Improved

Management Commentary

  • “Broad based business strength… helped us deliver 7.4 percent revenue growth… This growth has fueled good momentum going into 2025.” — David R. Little, CEO .
  • “Fiscal 2024… represents the most profitable year in our Company’s history… DXP ended the year with $148.4 million in cash… net debt of $500.6 million… secured leverage ratio… 2.4:1.0.” — Kent Yee, CFO .
  • “Our energy-related bookings and backlog… at all-time highs… a significant project win… estimated to meaningfully impact our sales performance in Q1 or Q2 of 2025.” — Kent Yee .

Q&A Highlights

  • Margins trajectory: Q4 gross margin expansion vs Q3 driven by mix (higher-margin water/wastewater acquisitions and base business initiatives); management seeks continuation into Q1, but emphasizes mix dynamics can vary .
  • EBITDA margin target: CEO elevated ambition to ~11% Adjusted EBITDA margin, aligning compensation with achieving the target .
  • Macro/tariffs: CEO noted tariffs could be a headwind if they slow the economy; inflation is manageable with pass-through pricing and has historically not pressured margins .

Estimates Context

  • S&P Global consensus estimates for Q4 2024 revenue and EPS were not retrievable due to SPGI daily request limit constraints; therefore, estimate comparisons are unavailable at this time. Values would have been retrieved from S&P Global if accessible.

Key Takeaways for Investors

  • Momentum into 2025: Backlog strength in IPS Water (+108% YoY) and energy (sequentially higher) plus a large energy project should support early-2025 revenue conversion .
  • Mix-driven margin upside: Continued pivot toward higher-margin Water projects and accretive acquisitions underpins the push toward ~11% Adjusted EBITDA margins; watch quarterly mix .
  • M&A and capital allocation: Refinanced debt (-100 bps) with $105M incremental capital and $148M cash provide ample M&A capacity; management targets 1–3 deals by mid-2025; ongoing buybacks ($28.8M FY24) provide support .
  • SCS stabilization needed: While resilient, SCS faces customer closures; management’s remote care model and sales pipeline could reignite growth—monitor bookings and margin contribution .
  • FCF vs growth investments: Q4 FCF moderated given capex and growth investments; conversion improved on the year but remains sensitive to project/inventory build; flexibility exists to pivot capex if needed .
  • No formal guidance: Trade the narrative—backlog conversion, margin execution, and acquisition updates will be primary stock catalysts near term; lack of numeric guidance increases reliance on operational KPIs and order trends .
  • Balance sheet improved: Lower interest cost and higher liquidity reduce risk and enhance ROIC-driven growth potential; secured leverage at 2.4x with covenant EBITDA $206.2M .