DNOW Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Execution: Solid execution in Q1, with EBITDA of $46 million, the second-best first quarter in public company history.
• Growth: Achieved top-line growth, with revenue up 6.4% YoY. Focus on diversifying market mix, investing in core market, energy evolution opportunities, and adjacent industrial markets.
• Acquisition: Closed a small international acquisition in April, complementing the MacLean International brand.
• Tariffs: Mitigating tariff impact through actions like passing supplier costs, updating pricing, multi-sourcing, and working with suppliers.
• DigitalNOW: Digital revenue as a percent of SAP revenue improved to 53%, driving efficiencies through integrated systems.

Segment Performance

• U.S.: Revenue was $474 million, up $23 million (5%) sequentially. U.S. energy centers contributed ~69% of total U.S. revenue, U.S. Process Solutions ~31%.
• Canada: Revenue was $62 million, down $4 million sequentially.
• International: Revenue was $63 million, up $9 million (17%) sequentially, driven by higher project activity.
• Overall: First quarter revenue totaled $599 million, up 4.9% QoQ and 6.4% YoY. Gross margins were 23.2%, EBITDA was 7.7% of revenue.

Guidance

• Second Quarter: Expect revenues to be flat to up in the mid-single-digit percentage range QoQ.
• Full Year 2025: Reaffirmed full year revenue to be flat to up in the high-single-digit percent range YoY, with EBITDA potentially approaching 8% of revenue, and targeting free cash flow of $150 million.

Risks

• Tariffs and Macro Uncertainty: Dynamic tariff situation, OPEC+ production affecting oil prices, and overall market volatility.
• Oil Price Decline: Potential impact on E&P activity, which could affect DNOW's upstream-related revenues.

Question and Answer

• Q: How is inflation tracking in the business? What product areas have seen most tariff-related price increases?
  • A: Inventory is under-costed due to prior deflation. Normal inflation and tariffs are affecting pricing, with valves seeing some of the impacts.
• Q: Update on geographic growth for the year?
  • A: International expected to be flat YoY, Canada to see seasonal decline, U.S. expected growth in midstream and from tariffs.
• Q: Diversification away from D&C?
  • A: Diversified into energy evolution, midstream, water/wastewater, data centers, and other adjacent industrial markets.
• Q: M&A landscape?
  • A: Active conversations with various companies, with varying levels of interest; cautious timing due to oil price volatility but opportunities exist.