Ero Copper Corp. Q2 FY2026 earnings call

• Overall Financial Performance • Total Q2 2026 sales hit $576.5 million, up 15.6% year-over-year, with organic sales growth of 11.1% and acquisition-related sales of $49.8 million. Average daily sales accelerated sequentially through the quarter, rising from $9.07 million in April to $9 million in May and $9.4 million in June. • Adjusted EBITDA reached $70.4 million (12.2% of sales), an all-time high margin, up from 11.5% in Q2 2025. Diluted EPS was $1.76 per share, up from $1.43 per share in Q2 2025, with net income of $28.7 million. • Free cash flow improved dramatically to $29.8 million in Q2 2025 from $8.3 million in Q2 2025, and hit $56 million for the first half of 2026, compared to negative $8.6 million in the prior year first half. • Total liquidity as of June 30, 2026 was $374.5 million, with an upgraded credit rating to B+ from B by S&P Global, with a stable outlook, recognizing the company's improved balance sheet and growth execution.

• Strategic Growth Initiatives • The company maintains a consistent strategy of profitable organic growth paired with disciplined acquisitions focused on expanding technical capabilities, geographic reach, and customer access in attractive end markets, particularly water and wastewater. • Four acquisitions were completed in the first half of 2026 for total consideration of $135.6 million, aligned with expanding the water and wastewater platform and strengthening DXP's position as a leading North American rotating equipment distributor. A fifth acquisition, Maquepco, was completed post-quarter-end to establish a beachhead for DXP Water in Canada, funded with cash and stock. • Key growth drivers include expanding technical and engineered solutions for pumps, automation, filtration, and process equipment, leveraging the decentralized local service model to drive cross-selling, and efficiently integrating acquired businesses.

• End Market and Operational Resilience • DXP serves mission-critical end markets including water and wastewater, energy infrastructure, general industry, air compression, and data centers, where demand for reliable, expert technical solutions provides inherent business resilience amid broader economic volatility from inflation, interest rates, tariffs, and geopolitical uncertainty. • Capital expenditures normalized to $5.9 million for the first half of 2026, down from $30.3 million in the prior year first half after elevated strategic investments in 2025, including software, facilities, and tooling for private label pump manufacturing.

1. Innovative Pumping Solutions (IPS): Q2 2026 sales reached $142.7 million, a 52.6% year-over-year increase, accounting for 24.75% of total company revenue. Acquisitions contributed $47 million in sales during the quarter, with organic sales growing 13.3% year-over-year. Segment operating income increased to $26.7 million, up from $18.6 million in Q2 2025. Sub-segment DXP Water hit $97.3 million in Q2 sales, nearly doubling year-over-year, with year-to-date sales of $175.5 million (up 85.6% year-over-year). Average Q2 IPS backlog increased quarter-over-quarter, with energy backlog growing 7.3% sequentially, reversing prior declines from H2 2025. 2. Service Centers: Q2 2026 sales were $367.9 million, an 8.3% year-over-year increase, representing 63.82% of total company revenue. Excluding recent acquisitions, organic sales grew $40.9 million year-over-year. Segment operating income came in at $54.2 million, demonstrating consistent strength in the core MRO business. Growth was driven by increased activity across major U.S. regions including California, the Gulf Coast, Southeast, North Texas, South Central, and South Rockies. 3. Supply Chain Services (SCS): Q2 2026 sales reached $65.8 million, a 0.6% year-over-year increase, accounting for 11.41% of total company revenue. Onboarding of new customers was partially offset by lower activity from some existing customers, leaving sales essentially flat year-over-year. Segment operating income increased to $6.5 million from $5.2 million in Q2 2025, with improved profitability despite stagnant sales.

• Management does not provide explicit quarterly numerical guidance, but noted that the strong 12.2% adjusted EBITDA margin achieved in Q2 2026 could be repeatable, driven by the higher-margin water and wastewater segment growing to nearly 70% of IPS sales, and that the business can sustain 12% EBITDA margins over the long term. • Strong sequential growth in IPS backlog, particularly in water and wastewater and energy segments, gives management confidence in durable customer demand for the remainder of 2026. • DXP Water has achieved 15 consecutive quarters of sequential sales growth, and management expects this growth momentum to continue through the second half of 2026. • The company maintains ample balance sheet liquidity and financial flexibility to continue pursuing disciplined organic and acquisition-based growth going forward.

• Broader macroeconomic volatility from inflation, higher interest rates, tariffs, and geopolitical uncertainty creates downside risk to customer activity levels and overall business performance. • Actual results may differ materially from forward-looking statements due to a range of material factors that are detailed in the company's SEC filings, with no obligation undertaken to update forward-looking disclosures after the call. • Long-cycle IPS project execution carries inherent uncertainty around revenue recognition timing that can impact quarterly performance relative to expectations. • Stagnant sales growth in the Supply Chain Services segment, driven by lower activity with some existing customers, presents a headwind to overall top-line growth.

Q: The analyst asked for May Q2 daily sales data and an update on early Q3 2026 sales trends. / A: Management provided full monthly average daily sales for the first half of 2026: January at $7.2 million, February at $8.4 million, March at $9.2 million, April at $9.1 million, May at $9.0 million, and June at $9.4 million. No separate update on early Q3 sales was provided. (187 characters)

Q: After hitting a 12% adjusted EBITDA margin in Q2, up from a consistent 11% range, the analyst asked whether 12% is sustainable or margins will revert to 11% in Q3. / A: Management explained that the higher margin was partially driven by mix, as higher-margin water and wastewater now makes up ~70% of IPS sales. The company does not give explicit guidance, but believes 12% margins are achievable on a sustainable long-term basis, though it was the first quarter hitting that level so no guarantees were made. (274 characters)

Q: The analyst asked what drove the elevated CapEx spending DXP had in 2025, after noting 2026 CapEx has returned to normalized levels. / A: Management confirmed that most DXP CapEx is growth-oriented rather than maintenance. 2025's elevated spending went to investments in software, facilities, equipment, and custom tooling (patterns) for the company's private label pump manufacturing line, supporting its position as a leading North American rotating equipment provider. (232 characters)