DNOW Inc. Q4 FY2025 earnings call

David Cherechinsky started by highlighting the team and the merger with MRC Global on November 6, 2025. Legacy DNOW had record EBITDA in 2025. The merger increased scale, diversified sector reach, expanded addressable market. There were ERP challenges with MRC Global U.S., but teams were working on remediation. Discussed market conditions in various sectors like upstream, midstream, gas utilities, downstream, and data centers. Mentioned revenue synergies from the merger, capital allocation priorities including investing, deleveraging, strategic M&A, and share repurchases. Mark Johnson discussed financial results including revenue, EBITDA, SG&A, income taxes, liquidity, and capital structure.

In 2025, legacy DNOW achieved a record full-year EBITDA of $199,000,000, with EBITDA as a percentage of revenue reaching 8.2%. Total 2025 revenue was $2,800,000,000, up $447,000,000 or 19% from 2024. U.S. revenue totaled $765,000,000, Canadian revenue was $200,000,000 for full year 2025, consolidated DNOW International revenue was $312,000,000 for full year 2025. Legacy DNOW International revenue was $222,000,000 in 2025, down 7.5% year-over-year. Fourth quarter adjusted EBITDA was $61,000,000, or 6.4% of revenue. Legacy DNOW fourth quarter revenue was $47,000,000, down ~10% sequentially. Canadian fourth quarter revenue was $51,000,000, down $2,000,000 or 4% sequentially. Consolidated DNOW International fourth quarter revenue was $143,000,000. Legacy DNOW International fourth quarter revenue was $53,000,000, down $1,000,000 sequentially.

DNOW has delayed sequential and full-year guidance due to ERP implementation challenges in legacy MRC Global U.S. operations and integration phase. They plan to reinstate guidance when there's greater operational stability and predictability in MRC Global U.S. operations. They expect to generate cash in the $100,000,000 to $200,000,000 range in 2026.

ERP implementation challenges in MRC Global U.S. have led to inefficiencies, negative operating and financial impacts, slow system, impeded customer service, required more resources, increased safety stock, and difficulty in processing orders. There are also market dynamics risks such as upstream market activity contraction, softening in chemical sector, and uncertainties related to ERP integration.

Q: Good morning, everyone. Let me start in first on a little bit more color on MRC's ERP transition. What was the impact in 4Q from the transition? Any color on when we should expect these headwinds to resolve going into 2026? You know, were these issues broad-based across MRC's business in the U.S., or was it specific to certain sectors?

A: Okay. In terms of the impact, let me give some timing on a quarterly basis. Again, as I mentioned in my prepared remarks, the ERP issues are limited to U.S. MRC only, not the international MRC business. And of course, the ERP impacts do not affect the legacy business for DNOW. In terms of the impact from the second quarter, the system was implemented 08/06/2025. And the revenue decline from the second to third quarter was—was pronounced. And MRC issued a press release when they announced their earnings and talked about that significant sequential decline. They also talked about the notable recovery in revenues in September and October, and they forecasted growth going into the fourth quarter in the mid- to high-single-digit range. I think what we have experienced in reality was, you know, it was a decline in revenues going into the fourth quarter. So there has been revenue loss attributable fully to the ERP implementation, both in the third and fourth quarters, so that impact is notable. In terms of the resolution for the system issues, we have all hands on deck to resolve the core infrastructure issues with Oracle for MRC Global U.S. We are not really sure when the resolution happens, but here is what we are doing to mitigate it in the short term. So we have immediately—we have DNOW systems focused on handling projects, especially bulky projects with a lot of deliveries that are cumbersome to move through the Oracle system at MRC. We are trying to push projects to the DNOW system to eliminate those snags that happened in Oracle. We have stood up—we have added over 200 personnel in the field to maximize customer service, to mitigate customer frustration, and to get products out the door and improve how we service our customers. We have stood up a help desk solely focused on handling issues as they emerge in the field, while we have a parallel team working on resolving matters with our external partners. And we have now taken the DNOW IT and operational excellence teams, who have integrated 24 companies over the acquisitions we have made since we have spun—we have put every company we bought on SAP or Syteline except two—except all—for all 24 companies, we have migrated them. We are very good at this. That team is now playing a major role in mitigating the disruptions and rectifying the problems we are experiencing there. In terms of how broad-based, interestingly, we are seeing stable revenues in the gas utility space. I think the prior management at MRC Global pointed that out in the third quarter earnings release. Very stable revenues there. Those are probably the stickiest relationships we have in our business. We are integrated with many of these customers. We are one of the bigger suppliers in gas utilities distribution, and we have been able to mitigate much of the disruption there. Where we are seeing the biggest negative impacts are in upstream and downstream. Now, you know, I am very comfortable about the recoverability in the upstream space because that is DNOW's sweet spot. You know, MRC's legacy strength has been in gas utilities and downstream, and certainly in their international business. But in the upstream space, we have a plan to migrate 20 locations onto SAP, off Oracle onto SAP. That process has begun. Again, we are handling projects in the SAP environment. And, you know, so we are doing all these things to maximize our revenue recovery as we move forward. But that is some color on your questions, Adam. Thank you.

Q: Thank you, Dave. That is really helpful. You know, turning to 2026 growth expectations, I understand the delay in issuing guidance, but can you maybe just help frame how you are thinking about, you know, maybe organic growth for the year, either by sector or for legacy DNOW?

A: Okay. Well, I will give some kind of some market assessments that we have kind of made, and then I will see if I am answering your question. But in terms of the upstream space, we expect upstream generally to be flat to down, like we have experienced for the last three years. And we have managed our response to that reality very well. We do expect some water management and disposal growth in upstream. That will be a positive, and we are seizing that. We have a real strong FlexFlow Trojan team that is focused on seizing market share there and pursuing growth, and they are primarily focused on upstream, but generally upstream will be flat to down. The midstream space, you know, we focused on midstream for the last three years. The WITCO acquisition from early 2024 really leapfrogged us in that space. Combining with MRC now, you know, we are a real powerhouse in that area. We should see midstream growth, especially in natural—the market itself, and we should be able to take advantage of that as well. I am sorry, natural gas infrastructure, feed gas for data centers, for example, LNG feed gas, et cetera. Gas utilities—our customers will be growing, and we see that as an opportunity, especially as we relieve the issues we are experiencing with Oracle. We have MTech solution meters that we are promoting in the market. We expect to take more wallet share from our customers, and we are pursuing revenue synergies like I talked about on the call for gas utilities. Downstream industrial—we think downstream will have a real strong turnaround a couple of quarters coming up. We expect chemicals to be down a little bit. But in terms of end market opportunities, we see some real strength, except for the midstream space, which represents about 40% to 50% of our business going forward. So that is kind of some end market focus. Again, in the U.S., MRC Global's arena, you know, where we—like prior MRC Global management, and we are saying today—we have lost some revenue momentum there. But I am confident we will get it back, especially as we alleviate the issues we are experiencing today.

Q: Thank you, and good morning, gentlemen. Good morning, Alex. David, I appreciate your decision regarding guidance. But maybe I could ask it a different way. Can you maybe talk about, strategically, your longer term vision for sort of revenue growth for the consolidated company and profit margins? And, you know, maybe if you are not yet ready for that, maybe if you could kind of give us some directional guidance on maybe just the DNOW business for 2026 and how you are thinking about revenue growth and margins in just that core business?

A: Well, let me try this. You know, we kind of gamed out how we would answer a question like this. You know, we are going to give, you know, select guidance on parts of the business. I really do not want to do that. But let me just give you some color on how we saw movement into the new year, whether we have these disruptions or not. Generally, we see our overall business with kind of a flattish revenue. That is how I saw going into 2026—flattish revenue. Very little revenue change organically. We saw the opportunities around cost synergies, integration of the businesses, revenue synergies that come from us working closer together and using each other's inventories and locations where one entity did not have geographic coverage but the other does. So we saw revenue upside to mitigate some of that overall revenue flatness. I gave some color on the end markets. DNOW is a very acquisitive company. We will do deals this year. And that would augment and kind of excite some of the bottom line implications. But that has been deferred a bit, you know, given what we are seeing with the ERP issues. Long term, the real benefits from DNOW and MRC coming together are these things. If you look at—you know, we are a distributor. Our relationships with our customers are almost—I mean, are, you know, rivaling in importance with our suppliers. In many cases, especially with the top manufacturers, DNOW or MRC was the number one or number two distributor in the supply chain. Or sometimes DNOW was number 12 and MRC was number one. We are going to take advantage of that. Our ability to be competitive—and we have numerous competition everywhere we operate, and—but sometimes our competition is very specialized. On a product line, on the manufacturer. We are going to be able to better compete, and with the cost synergies, we will be able to pull up costs and, you know, further improve our competition. So I think the long game is a better situation—better situated with our top—the top manufacturers our customers demand. A lot more volume, exciting suppliers about seeing a DNOW—combined DNOW, MRC Global—as the main source of pushing their products into the market. So better buying, better product availability, standardization, customers clamoring for access to products to grow the end markets. All that is going to conspire to, long term, enable together what we could not have done separately. So I think that is the main plan: volume, better costing, better competitiveness, and then earnings ultimately in that 8% EBITDA range where DNOW has, you know, has enjoyed over the last four years, but bringing the whole organization up over the next several years.

Q: That is helpful. And then in the past, you have discussed the importance of the people at DNOW and the people at MRC, and how important it is to give them a lot of attention. So can you speak with regard on your activities to retain and incentivize these key employees during this time of kind of ERP headwinds?

A: Yeah. That is a good question. So as you would expect with any merger of equals, there will be some turnover, and then in a situation where there is a disruption like this, there is a heightened sense of concern over that. So we have been very intentional about making sure our top talent is rewarded from a financial perspective and with various forms of tools used to do so, but also from a long-term perspective of making sure we put the top—the best people, the best salespeople, the best sales talent, the best IT talent—in the leadership positions to drive the future. So in terms of incentives, the things that are going to drive—enable us to keep our people is to show them long term we are going to pay bigger bonuses, bigger commissions. We are going to be more重要 to suppliers. We are going to have better leverage with them. The customers will benefit from how we manage the supply chain, and our personnel will as well. So with a mix of financial remuneration, challenging our folks, rewarding them, making them part of our solutions, including them in our decision making, I think all that long term has got us where we are today and will get us where we are going. We brought on some top leadership, sales and ops talent from MRC Global, and they have the same mentality we do. And we are deploying all the arrows in our quiver to make sure we excite, retain, grow our top talent and win in the market because of that organization.

Q: Hi. Good morning. Hi, Chuck. If you could touch on the ERP issues a little bit more. Can you tell us, do you feel like you have kind of hit the the worst of it and are working your way past that? Or is the worst of it still in front of you? Just trying to gauge kind of what you know right now. How long this lingers through 2026, at least— A: Yeah. You know,我认为 - 这可能不是回答这个问题的最佳方式 - 但我认为我们是一个非常善于应对的组织。我们有努力工作的员工加班加点照顾我们的客户，以真正掩盖系统中的缺陷。所以我们是通过努力工作来应对的，这很有帮助。我们 - 你知道，情况有所好转。我访问了我们的几个地点，几个美国MRC Global的地点，与很多领导层和仓库里的很多人交谈过。目前仓库的活动很难通过系统进行。但仅仅是凭借力量，我们正在努力克服一些这样的问题。与此同时，在后台，我们正在与我们的外部合作伙伴合作解决一些阻碍进展的问题。但我们仍然存在一些问题，比如在实施早期的旧发票，处理一张供应商的发票需要20分钟。这些是我们认为在未来会解决的一些旧活动，但仍然存在一些挥之不去的影响，仍然会减慢我们的速度。所以关于何时解决这个问题，你知道，我们可能在接下来的80天内召开下一次 earnings call，Chuck，我会有更好的了解。与此同时，我们正在做一些事情来简单地绕过这个实施带来的障碍。我也稍微谈了一下 - 通过SAP处理更多交易。我们正坐下来 - 我们有一个MRC Global的内部销售人员坐在DNOW销售人员旁边在SAP中输入订单来照顾他们的客户，以扭转我们在上线后的前几个季度经历的收入损失。所以我们正在应对。我们正在清理旧问题。我们正在快速推进解决方案以改善系统中的流程。我们还成立了一个帮助台来帮助处理一些轶事性的一次性问题。所以我们已经对这种情况进行了分类。我们正在努力解决。我将能够在接下来的80天左右谈论更多关于它的情况。 Q: And then just, my other question is on free cash flow. Can you talk a little bit about free cash flow in 2026? Maybe if you are not quite ready to talk about numbers there, just some of the puts and takes as well.

A: Yeah. I think I will say this. We are going to generate cash in the $100,000,000 to $200,000,000 range. Could be better. We have, you know, pent-up inventory, uncollected receivables. Both, to me, I see those as in-the-moment, near-term problems. Near-term problems, but those are opportunities too. We are going to level our inventory as we stabilize the system. We are going to collect those bills. I think from a cash flow perspective, it is going to be a good year for us. So, you know, that is how我回答这个问题。我认为2026年对我们来说将是一个不错的年份。我们会尽量在下次电话会议上提供更多细节，如果可以的话。当然，我们希望如此。