DXP Enterprises (DXPE) 2026會計年度第三季財報電話會議：營收成長 14.3%

重點摘要

• DXP Enterprises 公布 2026 財年第三季營收達創紀錄的 5.872 億美元，年增 14.3%。有機營收成長 8.7%，併購則貢獻了 4,880 萬美元。
• 調整後 EBITDA 成長 19.0% 至 6,730 萬美元，利潤率從 11.0% 擴張至 11.5%。營業利益增加 20.1% 至 5,250 萬美元。
• 稀釋後每股盈餘成長 25.2% 至 1.64 美元，淨利增加 24.2% 至 2,690 萬美元。
• 創新泵浦解決方案部門 (Innovative Pumping Solutions) 引領各部門成長，營收成長 43.3% 至 1.441 億美元。DXP Water 則連續第 16 季實現營收季增。
• 受產品銷售組合影響，毛利率年減 70 個基點至 30.7%。銷售及行政管理費用 (SG&A) 的槓桿效益部分抵銷了此壓力，SG&A 占營收比重從 22.9% 降至 21.8%。
• DXP 單季創造了 1,440 萬美元的自由現金流，截至 9 月底現金部位達 2.188 億美元。其 2.25 億美元的資產擔保貸款 (ABL) 額度仍未動用。

關鍵財務數據

2026 財年前九個月營收成長 13.2% 至 16.9 億美元，其中包括 9.3% 的有機成長。調整後 EBITDA 成長 17.5% 至 1.954 億美元，利潤率為 11.6%。自由現金流自去年同期的 1,950 萬美元激增逾三倍至 7,050 萬美元。

業務與營運表現

創新泵浦解決方案 (IPS) 營收年增 43.3% 至 1.441 億美元。近期併購項目貢獻了 4,080 萬美元，而 IPS 有機營收成長 1.6%。部門營業利益成長 27.4% 至 2,340 萬美元，營業利益率為 16.3%。

成長動能主要來自 DXP Water、生產合約以及併購。第三季水處理業務營收年增 71%，前九個月則年增 80%。管理層將水與廢水處理解決方案定位為長期策略成長平台。

IPS 能源相關平均在手訂單季增 5.8%。若扣除預計於第四季末完成出貨的一項大型工程處理解決方案專案，在手訂單則季增 7.8%，並較第一季成長 18.5%。

服務中心部門 (Service Centers) 營收達 3.766 億美元，年增 7.6%、季增 2.4%。成長主要來自東南部、加州、德州墨西哥灣沿岸及南落磯山脈地區，金屬加工產品表現亦十分強勁。該部門營業利益為 5,560 萬美元，營業利益率為 14.8%。

供應鏈服務部門 (Supply Chain Services) 營收成長 5.5% 至 6,640 萬美元。新客戶與新據點彌補了部分既有客戶活動放緩的影響。部門營業利益從 530 萬美元增至 600 萬美元，營業利益率為 9.0%。

DXP 在 2026 財年前九個月完成了五項併購案，並在季末後簽署協議收購密西根州的 MDS。管理層表示，併購儲備案源依然活躍，特別是在水與廢水處理、技術能力及地理版圖擴張方面。

管理層展望

管理層預期電話會議中討論的大型 IPS 專案將在第四季末前全數出貨。公司預期在當前產品組合影響消退後，IPS 利潤率將回升至歷史水準。

隨著專案請款與收款的管理，DXP 亦預期第四季營運資金將回歸正常化。單季利息費用預計將維持在 1,700 萬美元左右，並隨著按期償還本金而逐步小幅下降。

10 月平均每日銷售額為 903 萬美元，相較於 7 月的 845 萬美元、8 月的 951 萬美元及 9 月的 960 萬美元。管理層表示需求依然維持穩健，並強調公司並未為了爭取營收而採取結構性降價。

風險與關注焦點

受服務中心與 IPS 部門產品組合轉變影響，毛利率降至 30.7%。管理層表示該降幅並非結構性因素所致，但也坦言單季產品組合可能持續影響獲利能力。

營運資金自 6 月以來增加 2,760 萬美元，達到 4.209 億美元。應收帳款增加 3,250 萬美元，未開票工程成本增加 950 萬美元，部分反映了專案活動以及 DXP Water 的應收帳款天數較長。

管理層亦指出關稅、通膨、利率及地緣政治不確定性皆是可能為客戶帶來挑戰的因素。由於 IPS 涵蓋長週期的工程專案，使在手訂單轉化、專案執行以及請款紀律成為重要的觀察變數。

DXP 截至季末的總負債為 8.395 億美元。其擔保槓桿比率為 2.3 倍，現金總額為 2.188 億美元，扣除信用狀後的 ABL 可動用額度為 1.922 億美元。

分析師問答重點

管理層將第三季毛利率下滑歸因於正常的業務組合變動，而非定價壓力或結構性變化。管理層對毛利率維持在 30% 以上仍感到安心，並持續以獲利導向的銷售為目標。

IPS 營業利益率的季減亦與產品組合有關。管理層表示，一個利潤率較低的大型專案已在多個季度陸續認列，但這並非利潤率變動的唯一原因。

平均每日銷售額在第三季期間逐步增強，隨後在 10 月回落至 903 萬美元。管理層指出，截至 10 月的年初至今營收年增 13.9%。

管理層表示，第四季利息費用應與每季約 1,700 萬美元的水準大致相當。

財報電話會議完整逐字稿

完整財報電話會議逐字稿

管理層陳述

Operator

Hello, everyone. Thank you for joining us, and welcome to the DXP Enterprises Q3 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Kent Yee, CFO. Kent, please go ahead.

Kent Yee

Thank you. This is Kent Yee, and welcome to DXP's Q3 2026 Conference Call to discuss our results for the third quarter ending September 30, 2026. Joining me today is our Chairman and CEO, David Little.

Before we get started, I want to remind you that today's call is being webcast and recorded and includes forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis are contained in our SEC filings. DXP assumes no obligation to update that information because of new information or future events.

During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our earnings press release. The press release and an accompanying investor presentation are now available on our website at ir.dxpe.com. I will now turn the call over to David Little, our Chairman and CEO, to provide his thoughts and a summary of the third quarter performance and financial results. David?

David Little

Good morning, and thank you, and thank you to everyone joining us today on DXP's fiscal 2026 Third Quarter Conference Call. It is my pleasure to share DXP's third quarter results with you on behalf of 3,494 DXPeople. Congratulations to all our stakeholders and a special thank you to our DXPeople you can trust.

We carried our momentum from the first half of the year into a strong third quarter. I am proud of what our DXPeople accomplished in Q3. Sales grew year-over-year and sequentially, adjusted EBITDA increased 19% and from the prior year and DXP continued to generate positive cash flow.

What excites me is all 3 of our business segments grew sales sequentially and year-over-year. Our DXPeople are executing both locally and collectively as DXP advances our strategy of being customer-driven experts by providing technical engineered solutions that are reliable, fast and convenient.

Through the first 9 months of 2026, DXP generated $1.7 billion in sales, up 13.2%, and $195.4 million in adjusted EBITDA, up 17.5%. Our year-to-year adjusted EBITDA margin was $11.6 million. We are building a strong business and we intend to keep that customer first as we finish the year and as we continue to provide engineered solutions.

Total DXP sales for the third quarter were $587.2 million, up 14.3% year-over-year. Importantly, organic sales increased 8.7% year-over-year. Our acquisitions are contributing and our existing business are also growing. That combination is important. We are expanding our capabilities while continuing to capture more of our customers' wallet or spend.

Profitability remained strong compared to the prior year. Income from operations increased 20.1% to $52.5 million. Adjusted EBITDA increased 19% to $67.3 million and our 11.5% of sales. Net income increased 24.2% to $26.9 million. Diluted earnings per share increased to 1.64 compared to 1.31 in the third quarter of 2025. Gross profit margins were lower primarily due to sales mix.

We had a strong growth, but a portion of that growth came from lower margin business. There is nothing structurally different about the business. We did achieve operating leverage on our expenses as a percent of sales, which partially offset the lower gross margin percentage. As we move forward, improved gross margins and continue to leverage our expense base remain important opportunities for DXP.

From a growth standpoint, we continue to like where DXP is positioned. Customers in water and wastewater energy infrastructure, general industry, air compression, data centers and other technical markets need reliable responsiveness and expertise. These are DXP's strengths. They create opportunity for us to earn more of the customers' business and drive revenue and market share gains.

Our strategy has not changed. We want to grow organically and through acquisitions, diversify the company expand our technical capabilities and serve customers with solutions that are fast, convenient, reliable and supported by DXPeople. We are focused on profitable growth, strong cash generation and customer relationships that last.

Tariffs, inflation, interest rates, geopolitical uncertainty can certainly challenge our customers. Our focus is on what we can control, staying close to those customers, responding quickly, delivering the technical solutions they need, the work we support is critical. Keeping plants, facilities, municipalities, industrial operations moving. This is where our DXPeople make a difference.

During the first 9 months of 2026, our service centers and Innovative Pumping Solutions business generated approximately $1.5 billion in sales, up 14.7% and over the prior year. These businesses bring together the strength of our local customer relationship and our engineered solutions capability. That is a powerful combination for DXP.

Innovative Pumping Solutions again led our year-to-year growth in the third quarter. IPS sales increased 43.3% year-over-year and 1% sequentially to $144.1 million. The growth in IPS reflects increased water and wastewater activity, production contracts and strategic acquisitions. Our IPS team bring technical expertise to the complex customer applications, delivering engineered solutions and helping customers move important solutions forward. We like the momentum we are building in this business.

DXP continues to be an important long-term strategy. Sales were up 71% year-over-year and 1.8% sequentially. For the first 9 months of 2026, DXP water sales were up 80% year-over-year. Water is deliberately a growth platform for DXP and we are expanding it with technical capabilities, geographic reach and customer relationships to compound for many years.

We also saw increases in our energy and water and wastewater bookings and backlog. Our average energy-related backlog increased 8.7% sequentially in Q3. These are markets where our customers value experience, reliability and know-how. Many IPS engineered solutions are long cycle in nature, making disciplined execution and a steady pipeline of orders important.

As we move forward, our IPS focus is on disciplined execution, staying close to our customers and converting technical capabilities into the profitable growth of both DXP and its clients. We want to keep earning the next project by keeping today's project right. That means understanding the application, delivering reliable solutions and following through with the customer.

During Q3, service centers also delivered solid growth. Sales increased 7.6% year-over-year, 2.4% sequentially to $376.6 million. Organic growth remained a key contributor with increased activity across Southeast, California, Texas Gulf Coast and the South Rocky regions as well as strength in our middle working product category. This is the heart of DXP's local customer-driven bottles.

Our service center teams know their customers understand the application, respond quickly when the customer needs us. That local presence allows DXP to be fast, convenient by bringing real technical services to the customer.

Supply Chain Services increased $66.4 million, up 5.6% year-over-year and 0.9% sequentially. Growth reflected new customers in facilities, partially offset by lower activity within certain existing customers. We are pleased to see [ SES ] contribute to growth across DXP. This business is a great example of being customer-driven experts because we not just sell products. We are helping customers improve procurement, manage inventory, reduce complexity and make their supply chain faster, more convenient and more efficient.

Acquisitions continue to be an important part of DXP's growth strategy, and we remain disciplined. We look for businesses that fit our culture, strength through technical capabilities and help us serve customers faster and more conveniently. Our focus is on the building broader platform, expanding our reach, making sure growth creates lasting value for customers and shareholders.

For the first 9 months of 2026, acquisition sales were $139.4 million compared with $74.1 million in the prior year period. Acquisition sales contributed $48.8 million in Q3. We are pleased with our acquisition program, and our focus remains on operational and [indiscernible], cross-selling retaining great people, making each acquired business part of DXP's culture of DXPeople you can trust.

[ Equip ] contributed to our third quarter results. We are excited to welcome them aboard to DXP. We look forward to supporting their customers with broad capabilities of our company and continuing to build XP water in Canada. We continue to generate positive free cash flow. In the third quarter, free cash flow was $14.4 million compared to $29.8 million in Q2 growth, acquisitions, project activity required additional working capital in this quarter, which tempered cash generation.

For the first 9 months of '26 free cash flow was $70.5 million compared with $19.5 million in the same period of 2025. The year-to-date improvement matters. We remain focused on working capital discipline, aligning project billing with our investments and converting earnings into cash. We ended September with $218.8 million in cash and no borrowings outstanding on our ABL.

That is a strong financial position and gives us considerable flexibility, and we continue to invest in organic growth, pursue disciplined acquisitions, allocate capital where we believe can generate attractive long-term returns for our shareholders. Overall, I am encouraged by our third quarter and the momentum we have built through the first 9 months of 2026. We grew sales across all 3 segments, increased adjusted EBITDA earnings year-over-year, [indiscernible] generated free cash flow.

The real story remains our people, DXPeople, showing up every day for our customers and for each other. I want to personally thank all our DXPeople for their hard work, customer focus and execution. We're building the next chapter of DXP by being technical experts, providing customer-driven engineered solutions and continuing to be fast and convenient.

This is how we win. This is how we earn trust. This is why customers continue to rely on DXP. As we move into the fourth quarter, our promised priorities remain unchanged: drive organic growth, expand margins, grow our water and wastewater platform execute disciplined acquisitions, generate strong free cash flow and increase long-term shareholder value.

We have strong momentum, a strong balance sheet and significant opportunities ahead for us. We are focused on executing, expanding margins, generating cash and continue to build DXP into a large and more valuable company. We importantly. Most importantly, I want to thank our DXPeople. Their technical expertise, customer focus and hard work are what makes these results possible. Let's finish 2026 strong. With that, I will now turn it over 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 third quarter 2026 financial results. Q3 financial performance reflects continued execution across DXP with another record sales quarter, double-digit year-over-year growth in operating income and adjusted EBITDA and improved operating leverage across the business.

Our results also reflect the continued contribution of our acquisition strategy alongside strong organic growth in our service centers. At the same time, gross margins were impacted by mix this quarter, and we made a meaningful investment in working capital to support growth, which tempered free cash flow.

As it pertains specifically to our third quarter, DXP's financial results reflect record sales of $587.2 million, growing 14.3% year-over-year, including $48.8 million of acquisition sales. Organic sales growth of 8.7% year-over-year led by 11.3% organic growth in service centers, continued strategic acquisition activity, closing 5 deals through Q3 and 1 subsequent to quarter end. Operating income growth of $8.8 million or 20.1% to $52.5 million, with operating margins expanding to 8.9%.

Adjusted EBITDA of $67.3 million, up 19% year-over-year with adjusted EBITDA margins of 11.5% and diluted earnings per share of $1.64, up 25.2% from $1.31 in Q3 of last year. In terms of our detailed financial results, total sales for the third quarter increased 14.3% year-over-year to $587.2 million. Acquisitions that have been with DXP for less than a year contributed $48.8 million in sales during the quarter.

Excluding the impact of acquisitions, organic sales were $538.3 million representing 8.7% organic growth compared to the third quarter of 2025. Average daily sales for the third quarter were 9.18 million per day versus 8.03 million per day in Q3 of last year. Adjusting for acquisitions, organic average daily sales were 8.41 million per day versus 7.74 million per day in Q3 of 2025.

As is typical, sales accelerated throughout the quarter with average daily sales increasing from $8.45 million per day in July to $9.6 million per day in September, reflecting a normal quarter end push, but highlighting strong acceleration coming into quarter end.

In terms of our business segments, Innovative Pumping Solutions grew 43.3% year-over-year, followed by service centers growing 7.6% and Supply Chain Services growing 5.5% year-over-year. Innovative Pumping Solutions sales increased $43.6 million or 43.3% year-over-year to $144.1 million. This growth reflects increased activity in DXP water, increased production contracts and strategic acquisitions within IPS.

Recent acquisitions contributed $40.8 million sales during the quarter compared to $6.7 million in Q3 of last year. Excluding acquisitions, IPS organic sales were $2.5 million or 1.6%. Segment operating income for IPS was $23.4 million, up from $18.4 million or 27.4% compared to Q3 of last year.

In terms of Innovative Pumping Solutions backlog we experienced increases in the energy and water and wastewater bookings and backlog. Our Q3 energy-related average backlog grew 5.8% sequentially, which is consistent with what we saw in Q2 and further stems to the declines we saw in Q3 and Q4 of last year. That said, as we have mentioned, we continue to have some large engineered solutions, and we have continued to recognize revenue again in Q3 and should be completely shipped by the end of Q4.

Excluding this project, our backlog is up 7.8% sequentially and 18.5% from Q1. The conclusion continues to remain that we are trending meaningfully above all notable sales levels and our backlog has mitigated some decline we saw in the second half of 2025 and positions us to do well going into 2027. Our DXP Water platform experienced our 16th consecutive quarter of sequential sales growth and we will look for this to continue as we close out fiscal year 2026.

In terms of our service centers, service center sales increased $26.5 million or 7.6% year-over-year to $376.6 million. This growth was driven by increased business activity across multiple regions, including Southeast, California, Texas Gulf Coast and South Rockies. Additionally, we saw strength in our metalworking product category.

From a segment operating income perspective, Service Centers generated $55.6 million of operating income in the quarter, reflecting continued strength and consistency in the core MRO business. We are building a larger, more diversified platform with attractive end market demand, project opportunities and recurring service potential. Supply Chain Services sales increased $3.4 million or 5.5% year-over-year $66.4 million.

Performance reflects the onboarding of new customers and related facilities, partially offset by decreased activity with certain existing customers. Segment operating income was $6 million compared to $5.3 million in the prior year period, reflecting improved profitability along with a pickup in sales growth.

Turning to gross margins. DXP's total gross margins were 30.7% for the third quarter compared to 31.4% in Q3 of 2025. Gross margin was negatively impacted by approximately 65 basis points, primarily due to mix shifts within both Service Centers and IPS during the quarter. That said, on a year-to-date basis, gross margins were 31.6% compared to 31.5% in the first 9 months of 2025, reflecting the continued reflecting -- excuse me, the continued contribution from recent acquisitions and our continuing margin expansion efforts.

Our SG&A for the quarter increased $10.5 million from Q3 of last year to $128 million and was essentially flat or $500,000 sequentially from Q2. The year-over-year increase reflects increased payroll-related costs, depreciation and amortization, including the addition of acquired businesses. However, SG&A as a percentage of sales improved approximately 108 basis points to 21.8% from 22.9% in Q3 of last year, reflecting operating leverage as sales increased.

Total DXP operating income was $52.5 million in the third quarter or 8.9% of sales versus $43.7 million or 8.5% of sales in the third quarter of 2025. In terms of segment operating margins, service centers, IPS and Supply chain services at 14.8%, 16.3% and 9% operating income margins, respectively.

Turning to EBITDA. 2026 adjusted EBITDA was $67.3 million compared to $56.5 million in Q3 of 2025. Adjusted EBITDA margins were 11.5%, up from 11% last year, the improvement reflects sales growth and the fixed cost SG&A leverage we continue to see as we scale the business, partially offset in this quarter by lower gross margins. For the quarter, this translated into 1.3x operating leverage. Year-to-date, adjusted EBITDA was $195.4 million with adjusted EBITDA margins of 11.6% versus 11.2% in the first 9 months of 2025.

In terms of our -- our net income was -- for Q3 was $26.9 million, up 24.2% from $21.6 million in Q3 of last year. Earnings per diluted share for Q3 2026 was $1.64 per share versus $1.31 per share last year. Our effective tax rate for the quarter was 26.3% compared to 26.6% in Q3 of last year. Year-to-date, earnings per diluted share were $4.62 versus $3.98 for the first months of 2025.

Turning to the balance sheet and cash flow. In terms of working capital, working capital as of September 30, 2026, was $420.9 million, an increase of $27.6 million from June and $59.2 million from December of 2025. As a percentage of the last 12 months sales, this amounted to 19%. The increase was primarily due to sustained sales growth, acquisitions and increased project activity.

During the quarter, accounts receivable increased $32.5 million and costs in excess of billings increased $9.5 million with receivable days increasing within DXP water. We continue to focus on tightly managing our project work and aligning billings with the investments, and we expect working capital to normalize as we move into the fourth quarter.

In terms of cash, we had $218.8 million in cash on the balance sheet as of September 30. We also had $192.2 million of availability under our ABL after $32.8 million in letters of credit. We remain undrawn on our ABL, which provides DXP with ample dry powder to pursue acquisitions and broadly invest in DXP.

CapEx in the third quarter was $4.2 million compared to $6.7 million in Q3 of last year. For the first 9 months of 2026, capital expenditures were $10.2 million compared to $37 million in the first 9 months of 2025. This reflects a more normalized level of capital spending following the elevated investments we made last year.

Turning to free cash flow. Cash flow from operations was $18.7 million in the third quarter, and free cash flow was $14.4 million versus million in Q3 of 2025. The year-over-year decline reflects the investment in working capital previously mentioned. For the first 9 months of 2026, free cash flow was $70.5 million compared to $19.5 million in the prior year period, more than tripling year-over-year.

Over the last 4 quarters, DXP has produced $105 million in free cash flow or an average of approximately $26 million per quarter while continuing to grow the business. As of September 30, our fixed charge coverage ratio was 2.98: 1, and our secured leverage ratio was 2.3:1, with a covenant EBITDA for the last 12 months of $270 million.

Total debt outstanding on September 30 was $839.5 million. In terms of acquisitions, we have acquired 5 businesses through the first 9 months of 2026, including the acquisition of [ Mico ] Limited in the third quarter, which was funded with cash on the balance sheet and DXP stocking gives DXP Water a beachhead to expand in Canada.

These acquisitions are directly aligned with our strategy to expand our water and wastewater platform, extend our geographic reach and maintain our position as the largest distributor of rotating equipment in North America. Subsequent to quarter end on November 1, we entered an agreement to acquire MDS at Michigan, which was also funded with cash on the balance sheet.

DXP's acquisition pipeline continues to remain active and we continue to see acquisitions as a disciplined and repeatable growth lever for DXP, particularly where we can add strong teams, technical expertise and market access in attractive end markets. As a reminder, during the third quarter, we further strengthened our financial position. On July 2, we entered into a new loan agreement, increasing our ABL to $225 million and extending the maturity to July 2031.

Also on July 20, S&P Global Ratings upgraded DXP's issuer credit rating from B+ from B. Together, these give us additional financial flexibility as we continue to invest in the business organically and through acquisitions.

In summary, we are pleased with our third quarter and year-to-date performance. Through the first 9 months of 2026, sales grew 13.2% to $1.69 billion. Organic sales grew 9.3%. Adjusted EBITDA grew 17.5% to $195.4 million and free cash flow more than tripled to $70.5 million. In the third quarter, we delivered record sales, strong organic growth in our service centers expanding operating and adjusted EBITDA margins and continued progress on our acquisition strategy.

We believe DXP remains well positioned to continue creating value through our resilient MRO and supply chain solutions. Our engineered solutions and the growing scale of DXP Water and a disciplined acquisition strategy. We are excited about the future, and we look forward with confidence to closing out 2026 strong. I will now turn the call over to questions.

Operator

[Operator Instructions]. Your first question comes from the line of Zach Marriott with Stephens.

分析師問答

Zachary Marriott

Is there any color you can share on demand overall then more precisely on the daily sales trends by month for both Q3 and Q4 thus far, please?

Kent Yee

Absolutely. I can walk through the daily sales trend, and I'll just go from July and pull it through October. So our July average daily sales was $8.45 million. August was $9.51 million. September was $9.60 million and then October was $9.03 million per day. Year-to-date -- Zach, if you look at on a year-to-date variance, we're up on a year-to-date basis, 13.9% year-over-year.

Zachary Marriott

Perfect. And then is there anything that should drive a meaningful margin difference whether up or down when comparing 3Q to 4Q? Anything to call out?

David Little

Sorry, if you haven't noticed, I've got a really bad cold. But no, no, no, the margins were just a mix problem. There wasn't anything very specific, nothing jumped out there was -- some people were up. Other people were obviously down. And I think there's we feel good about demand.

And so we're not trying to structurally cut prices to capture more sales. We're still trying to capture profitable sales. So it was it just kind of is what it is. It was still north of 30%, which we spent a long time getting there.

Zachary Marriott

And then sticking on margins in the Innovative Pumping Solutions segment specifically. They dipped quarter-over-quarter. Just what was the driver there? And what is a reasonable expectation for Q4 in that segment?

Kent Yee

Zach, once again, similar to David's comments, I'd echo the mix shift in my comments, I mentioned was in service centers and IPS. So some of that's just once again, a mix shift in IPS, the sequential kind of decline in operating income margins, and so that kind of is what it is.

Specifically, we also have a fairly large project we talked about without getting into too many of the specifics. And so that shift and should be complete by the end of Q4 and -- and so we would expect margins once again to be historically what they've been.

Zachary Marriott

Got it. And then -- sorry.

David Little

No, I was just going to add that not to give the wrong impression of the -- a bigger order we have at a little lower margins. But we've been on a percentage completion basis, dealing with that for several quarters now. So I don't really think that had much effect in my opinion. I think commission work, which is at 100% was -- maybe we can point to that a little bit.

But I don't -- bottom line is we were fine with where the margins landed. We were a little surprised, I guess, that they trended down, but there wasn't any clear answer to it besides just normal everyday business and just how the mix worked down.

Zachary Marriott

Got it. And then last one, if I may, on interest expense holding pretty steady around $17 million a quarter. Is this a fair assumption for Q4 as well?

Kent Yee

Yes. Yes. No. Zach, that's fair. We obviously redid the Term Loan B now almost a year and some change ago. And so we, for a period went up to at-call it, that $17 million. And as the year goes, it should taper slightly. You have some quarterly principal payments. But outside of that, it should stay in the rough same range.

Operator

There are no further questions at this time. I will now turn the call back to David Little for closing remarks.

David Little

Well, thanks, everybody, for participating on the call. I would just like to leave you with, I guess, my thoughts on about the business and the core DXP business is growing. Acquisitions are adding to that growth. Water is becoming a major strategic platform. We have additional margin opportunity.

The balance sheet gives us the capacity to continue to compound the business and creating long shareholder value. Distinct conclusion, thanks to our DXPeople. We feel like things are solid and onward and upward. So thank you very much.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.