DNOW Inc. Q3 FY2025 earnings call

• David Cherechinsky noted the third quarter delivered the strongest revenue since 4Q 2019 and EBITDA was 7x that of a comparable prior period. • Revenue for the third quarter grew in line with guidance to $634 million, a level not seen since before 2020. • EBITDA was $51 million, 8% of revenue, showing continued earnings durability. • Activity for products and services remained healthy with operators prudently deploying capital. • DNOW improved inventory turn rates and days sales outstanding. • The merger with MRC Global has received shareholder and regulatory approvals, and the combined company is expected to have synergies. • DigitalNOW analytics team built a solution to improve supply chain efficiency for a customer.

In the third quarter of 2025, DNOW's revenue grew to $634 million, the strongest since 4Q 2019. U.S. revenue was $527 million, Canada revenue was $53 million, and international revenue was $54 million. EBITDA for the quarter was $51 million, which is 8% of revenue. U.S. Energy Centers contributed approximately 73% of total U.S. revenue, and U.S. Process Solutions contributed approximately 27%.

• Expect fourth quarter revenue to be seasonally down sequentially. • Full year 2025 EBITDA could approach 8% of revenues. • 2025 full year free cash flow could approach $150 million. • Anticipate discrete tax items in the fourth quarter affecting the effective tax rate.

• Risks associated with integrating the merger with MRC Global, including potential disruption and revenue leakage. • Discrete tax items in the fourth quarter that could impact the effective tax rate.

Q: Starting on MRC, with another quarter to explore the merger, have you gained any new insight into the opportunities to drive additional cost synergies or maybe give you more confidence in achieving your cost synergy target?

A: Our integration teams are focused on itemizing things to achieve the $70 million in synergy savings, and we're focused on delivering that. Immediate priorities are retaining top talent and growing the business while achieving savings.

Q: What do you think are going to be the most difficult parts of the integration? How do you manage the risk? And do you think you have all the systems and processes in place to limit disruption during the integration and really focus on growth here?

A: The biggest challenge is motivating and promoting the future to keep folks engaged. We'll be on the ground in key locations promoting the story, leverage enthusiasm to grow customer relationships, and avoid revenue leakage while proving we're better as a combined company.

Q: It sounds like from your comments with respect to U.S. revenue that you continue to gain share with your E&P operator customers. Is there still a lot of room for that as you look into 2026?

A: As the two companies come together, we can grow that in a combined sense better than separately. Our sales teams can work together on revenue synergies and selling from new locations to current customers.

Q: You called out Flex Flow and EcoVapor and then highlighted the midstream growth opportunity. Can you provide any visibility as you think about that into 2026 and what impacts those types of opportunities have on D&O's margins?

A: Flex Flow and Trojan make up the water management solutions group. There are opportunities to leverage from upstream into different market sectors. Plans are to continue to evaluate the business to grow, invest organically, and there are opportunities in the U.S., Canada, and international. Early to forecast 2026 but focused on growth.

Q: Brad hit on this a little bit earlier, but can you provide an update on your growth opportunities in adjacent industrial markets? And maybe remind us what your exposure is to data centers and maybe the opportunity set there to go after the opportunities that require cable pumps and PVF for cooling in data centers?

A: We've made an intentional effort to grow the midstream business. On the data center side, providing pipe, valves, fittings, and fabricated equipment for natural gas-fired turbines. Also opportunities with MacLean Electrical on the cable side and in data center four walls with PVF product lines. Excited about combined opportunities with MRC Global in this area.

Q: Maybe we can talk about gross margins, came in strong again, up 60 basis points year-over-year. Maybe some color on how price cost is tracking in the business, maybe your expectations for product line inflation for the balance of '25 and into 2026?

A: Focus on maximizing gross margins by providing value, focusing on higher-margin product lines. In an inflationary environment, navigate well to drive improved gross margins. Depends on end market growth, with focus on growing gross margins in LNG and midstream sectors.